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June housing starts increase

After a three-month pattern of declining construction activity, housing starts, completions and permits all showed signs of improvement in June.
7/31/2017 1:40:14 PM

After a three-month pattern of declining construction activity, housing starts, completions and permits all showed signs of improvement in June, according to the latest data released by the U.S. Census Bureau.

Housing starts increased 8.3% compared to May, rising to a seasonally adjusted annual rate of 1,215,000. This is also 2.1% over the rate seen in June 2016.

Housing completions were also on the rise, reaching a seasonally-adjusted annual rate of 1,203,000. This demonstrates a month-over-month increase of 5.2%, and a year-over-year growth of 8.1%.

New construction comes at an ideal time

These numbers are good news for the real estate industry, which has suffered a lack of inventory for many consecutive months. In fact, according to the National Association of Realtors, the supply shortage has continued to impact existing-home sales, even into the traditionally very busy home sales month of June.

"Closings were down in most of the country last month because interested buyers are being tripped up by supply that remains stuck at a meager level and price growth that's straining their budget," Lawrence Yun, NAR's chief economist, explained in a press release.

Existing-home sales were down 1.8% in June compared to a month earlier. The seasonally adjusted annual rate of 5.52 million marks the second-lowest rate seen all year, surpassed only by February - traditionally a very slow month for home sales.

Though construction activity appears to be picking up the pace, the lack of housing options remains a constant stressor on the market.

At the end of June, inventory was 7.1% lower than it was in June 2016 and 0.5% lower than it was in May 2017. With 1.96 million homes on the market at the beginning of July, it would take just 4.3 months at June's sales pace to completely deplete the supply.

This is why new construction is so important. June's numbers were higher than expected, CNBC reported, which could indicate a turning point. Economists anticipated housing starts would reach 1.16 million in June. The construction of 55,000 more homes than expected certainly represents a positive.

Future challenges anticipated

In addition to the unexpected increase in starts, new building permits issued in June also increased, hinting at future construction projects. According to the Census Bureau, permits jumped 7.4% compared to May, reaching a seasonally adjusted annual rate of 1,254,000.

In the months to come, though, there will continue to be challenges for housing construction. Three major factors have held up progress so far and threaten to continue to do so. Those include lack of labor, land and lumber.

These factors had a big impact on builder confidence, which, according to the National Association of Home Builders/Wells Fargo Housing Market Index, fell 2 points in July to 62, the lowest reading since November 2016.

"Our members are telling us they are growing increasingly concerned over rising material prices, particularly lumber," Granger MacDonald, NAHB's chairman and a Texas builder and developer, said in a press release. "This is hurting housing affordability even as consumer interest in the new-home market remains strong."

Despite the uncertainty, housing demand continues to encourage prospective homebuyers to enter the competitive market, touring homes, obtaining residential mortgages and ultimately making purchases.

"The demand for buying a home is as strong as it has been since before the Great Recession," Yun pointed out.

"The good news is that sales are still running slightly above last year's pace despite these persistent market challenges," he added.

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