US Housing Starts July 2010

In July 2010, US housing starts rose by a modest 1.7%m/m to 546 000. This was below market expectations for a rise of 2.0%m/m. Housing starts reached a record low of 477 000 in April 2009, and have since increased by a total of 14.5%. Despite the increase, the overall level of housing construction is still dramatically below the 2006 peak level of over 2.2 million. It will probably take the housing market many years to regain the previous peak.

Unfortunately, housing permits fell more than expected in July, down 3.1%m/m to 565 000. The market was expecting a decline of 0.5%m/m. There is a reasonably close relationship between the growth in building permits and housing starts, which would suggest no real improvement in housing activity in the months ahead. Overall, building permits remain extremely depressed and close to the record low of 522 000 in March 2009.

On the whole, US housing activity weakened noticeably in May, June and July 2010, following the expiry of the relatively generous Federal Housing Tax Credit at the end of April 2010. A range of housing indicators are now at, or near, record lows. These include new homes sales, housing permits, housing starts and mortgage applications for purchase.

More positively, although the housing market is probably the single weakest aspect of the US economy, there are some supportive factors (including the affordability index and the most recent evidence of stability in house prices), which suggest that the housing market is unlikely to cause the US economy to move back into recession, but equally not lead the economic recovery. The damage inflicted by the bursting of the housing finance bubble is mostly already in the base.

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