WASHINGTON - U.S. homebuilding fell to a nine-month low in June and permits for future construction declined for a third straight month, dealing a blow to the housing market as it struggles with a dearth of properties available for sale.
The bigger-than-expected decrease in housing starts and surprise drop in permits reported by the Commerce Department on Wednesday suggested homebuilding could be plateauing against the backdrop of more expensive lumber, and land and labor shortages.
"We're seeing pressure on both sides of the market, from increasingly expensive inputs on the supply side to prices that are charging ahead of wage growth on the demand side, and the result is that neither builders nor buyers can keep up," said John Pataky, executive vice president at TIAA Bank in Jacksonville, Florida.
Housing starts tumbled 12.3 percent to a seasonally adjusted annual rate of 1.173 million units last month, the lowest level since September 2017, the Commerce Department said. The percent drop was the largest since November 2016 and both single and multi-family home construction declined in June.
Data for May was revised down to show starts rising at a 1.337 million-unit rate instead of the previously reported 1.350 million-unit rate. Starts fell in all four regions last month.
Building permits dropped 2.2 percent to a rate of 1.273 million units, also the lowest level since September 2017.
Economists polled by Reuters had forecast housing starts falling to a pace of 1.320 million units last month and permits rising to a rate of 1.330 million units.
The PHLX housing index was trading lower, underperforming a broadly firmer U.S. stock market. The dollar rose against a basket of currencies, while prices for U.S. Treasuries were mostly flat.
Single-family homebuilding, which accounts for the largest share of the housing market, decreased 9.1 percent to a rate of 858,000 units in June. Single-family homebuilding has lost momentum since hitting a pace of 948,000 units last November, which was the strongest in more than 10 years.
RISING MATERIAL COSTS
A survey on Tuesday showed confidence among single-family homebuilders unchanged in July, with builders continuing to be "burdened by rising construction material costs."
The Trump administration in April 2017 imposed anti-subsidy duties on imports of Canadian softwood lumber, which builders say have boosted the price of a new single-family home, further reducing affordability for many first-time buyers.
Mortgage rates have also risen, though they are still low by historic standards. At the same time, wage growth has been moderate. Residential investment contracted in the first quarter. June's sharp drop in homebuilding suggested housing was probably a drag on growth in the second quarter.
The housing market is lagging overall economic growth, which appears to have accelerated in the second quarter after hitting a soft patch at the start of the year. Growth estimates for the April-June period are as high as a 5.3 percent annualized rate, more than double the 2.0 percent pace in the first quarter.
"The June report builds on what has been a soft run for many of the housing indicators through much of the year to date, and it signals that residential investment will likely continue to look weak in the coming months," said Daniel Silver, an economist at JPMorgan in New York.
While permits to build single-family homes rose 0.8 percent in June to a pace of 850,000 units, they continued to trail starts. This suggests limited scope for a pick-up in single-family homebuilding in the months ahead.
Starts for the volatile multi-family housing segment plunged 19.8 percent to a rate of 315,000 units in June. Groundbreaking on buildings with five units or more fell to a 10-month low.
Permits for the construction of multi-family homes dropped 7.6 percent to a pace of 423,000 units.
In another sign supply will remain tight, housing completions were unchanged at a rate of 1.261 million units in June, with single-family units falling 2.3 percent.
Realtors estimate that housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month to plug the inventory gap.
The stock of housing under construction slipped 0.5 percent to 1.121 million units. Single-family homes under construction last month dipped 0.2 percent to 515,000 units.