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Lead Analyst Logan Mohtashami discusses his recent article on the latest jobs report and the most likely impact on the housing market and mortgage forbearance.

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Real Estate

Housing starts drop 12.3% in June

Labor and supply holding construction back

Housing starts fell 12.3% in June, indicating tariffs and taxes are a deterrence to continual growth, according to the latest report from the U.S. Census Bureau.

Privately owned housing starts decreased in June to a seasonally adjusted annual rate of 1.17 million, down 12.3% from May’s 1.34 million. This is also down 4.2% from the annual rate of 1.23 million in June 2017. 

Single-family housing starts decreased 9.1% month-over-month to a rate of 858,000, down from 944,000 in May.

The June rate for units in buildings with five or more units dropped to a seasonally adjusted rate of 304,000, a 8.7% decrease from May. However, this is a 4.1% increase from the previous year.

One expert stated that Millennials are ready to start purchasing homes, but there might not be enough inventory to sustain their needs.

“It’s alarming that the single-family construction permit growth is decelerating at a time when homeownership is rising and Millennials are reaching their peak age to really enter the market and buy their first home,” Freddie Mac Chief Economist Sam Khater said. “The growing imbalance between demand and supply is the reason home prices continue to escalate."

Building permits, decreased from May both monthly and annually. Privately-owned housing units authorized by building permits dropped 2.2% from 1.30 million in May to a seasonally adjusted annual rate of 1.27 million in June. This is down 3% from 1.31 million in June 2017. Once again, the monthly drop was led by the multifamily sector, as single-family authorizations decreased 9.1% from 944,000 in May to 858,000 in June.

LendingTree Chief Economist Tendayi Kapfidze said although 3-month average building permits are close to the highest level since 2007, labor shortages are weighing on building activity and starts are still lagging.

“The tax plan will increase builder margins by 10-15%, which we had expected to encourage more activity,” Kapfidze said. “However, the tariffs, which are essentially a tax, are negating some of the benefits and could be starting to have a suppressive effect on activity.”

Privately owned housing remained unchanged at seasonally adjusted annual rate of 1.26 million in June, but is also up 2.2% from 1.23 million in June 2017.

Single-family housing completions decreased 2.3% from the 882,000 reported in May to a rate of just 862,000 completions in June.

“Americans want more homes, but the June Housing Starts report shows the supply is lagging further behind,” Navy Federal Credit Union Economist Robert Frick said. “Figures such as time-on-market and rising home prices show there is no lack of demand, but the supply side continues to have issues.”

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