Housing starts slump 4% in July, but there’s one silver lining for the real-estate market

A slowdown in apartment construction prompted the monthly decline


New-home construction slipped in July, but permitting activity rose suggesting that the summer slowdown may not be a trend.

The numbers: Construction on new houses fell 4% in July to the second-lowest rate this year, but builders applied for more permits in a positive sign for the housing market.

Housing starts dropped to an annual rate of 1.191 million in July from a revised 1.241 million in June, according to the monthly report from the Commerce Department.

Economists polled by MarketWatch had anticipated a 1.25 million rate for starts.

Permits to build additional properties increased 8.4% to a seasonally-adjusted annual pace of 1.336 million from June’s revised rate of 1.232 million. For permits, economists polled by MarketWatch expected a rate of 1.29 million.

Read more: Mortgage rates rest near historic lows as the specter of a recession roils markets

What happened: A slowdown in apartment construction was to blame for the drop in starts.

Multi-dwelling projects of five or more units dropped 17.2% versus a 1.3% increase for single-family homes, which account for most new construction. This was the highest rate of new single-family construction (876,000) since January.

Regionally, new construction declined everywhere except for the Western states, where it rose 1.3%.

Big picture: The decline of mortgage rates throughout 2019 has yet to spark any sort of major boom for the home-buying market, though at the margins it may be helping ease affordability constraints for some Americans.

Home builders continue to face the same headwinds as they have all year. There are a large number of open construction jobs that need to be filled. Meanwhile, land is more expensive, and the ongoing tariff disputes between the U.S. and other countries (notably, China) have raised the prices of construction materials.

Also see: A Danish bank is offering mortgages with negative interest rates — why you shouldn’t wish for that to happen in the U.S.

What they are saying? “A significant disappointment in July housing starts should be at least somewhat offset by a nicer reading on building permits, suggesting that there’s better news coming for U.S. housing,” said Avery Shenfeld, chief economist of CIBC Capital Markets.

Market reaction: The Dow Jones Industrial Average DJIA, +1.20% and S&P 500SPX, +1.44% rose slightly in Friday trades.

Shares of home-building companies such as LGI Homes LGIH, +0.79%, D.R. Horton DHI, +1.66% and Meritage Homes MTH, +1.04% all fell on the housing-starts data. One fund that tracks housing stocks ITB, +1.35% fell slightly Friday morning, while another XHB, +1.40% remained even with the previous day.

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