US homebuilding hit an eight-month low as construction activity slows
Housing starts weakened despite a dearth of properties on the market, which is hurting sales and boosting prices. Economists blame shortages of labour and land for the downturn.
WASHINGTON: US homebuilding fell for a third straight month in May to the lowest level in eight months as construction activity declined broadly, suggesting that housing could be a drag on economic growth in the second quarter.
Housing starts weakened despite a dearth of properties on the market, which is hurting sales and boosting prices. Economists blame shortages of labour and land for the downturn. Demand for housing remains strong, underpinned by a tightening labour market.
“The recent stall in home-building is bad news for growth,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh. “A shortage of construction workers may be weighing on the construc- tion industry, and in some parts of the country short supply of land to build on is also a factor.”
Housing starts dropped 5.5 per cent to a seasonally adjusted annual rate of 1.09 million units, the Commerce Department said on Friday. That was the lowest level since September 2016 and confounded economists’ expectations for a rise to a 1.22 million- unit pace. Home-building fell 2.4 per cent on a year-on-year basis. Building permits last month fell 4.9 per cent to a pace of 1.17 million units, the lowest level since April 2016.
The housing data added to weak reports on retail sales, manufacturing production and inflation in tempering expectations of a sharp acceleration in economic growth in the second quarter. Another report on Friday showed a dip in consumer sentiment in early June.
Housing has contributed to gross domestic product for two straight quarters. The Atlanta Federal Reserve cut its estimate for second-quarter GDP to a 2.9 per cent annualised rate from a 3.2 per cent pace. The economy grew at a 1.2 per cent pace in the first quarter. US government bond prices were trading higher, while the dollar fell against a basket of currencies. The PHLX housing index dropped 0.23 per cent, with shares in the nation’s largest home-builder, D.R. Horton, declining 1.12 per cent.
US stocks fell as shares of WalMart and other retailers were hammered after Amazon.com announced its entry into the brickand-mortar retail business with its $13.7 billion deal to buy upscale grocer Whole Foods.
Broad weakness
Single-family home-building, which accounts for the largest share of the residential housing market, decreased 3.9 per cent to a 794,000 unit-pace last month, also the lowest level in eight months. Single-family home construction has lost momentum since racing to near a 9-1/2-year high in February.
Single-family building permits fell 1.9 per cent to a 779,000 unitrate. The third straight monthly decline in permits left them below the housing starts level, suggesting single-family homebuilding may remain weak in the coming months.
Economists blame the moderation on supply constraints rather than demand for housing, which remains underpinned by a strong labour market. With the unemployment rate at a 16-year low of 4.3 per cent, workers’ wages are gradually rising.
While mortgage rates have risen, they remain low by historical standards. A survey on Thursday showed a dip in home-builder confidence in June, with home-builders expressing frustration over ongoing shortages of skilled labour and building lots.
“Ongoing job growth, rising demand and low mortgage rates should keep the single-family sector moving forward this year, even as builders deal with ongoing shortages of lots and labour,” said Granger MacDonald, chairman of the National Association of Home Builders.