Housing starts dropped 5% from May to June, with the seasonally adjusted annual rate of new residential construction underway at its lowest level since October 2009. The Commerce Department‘s Census Bureau and the Department of Housing and Urban Development (HUD) said in its latest monthly report (download here) the preliminary seasonally adjusted annual rate of housing starts was 549,000 in June, down 5% from the downwardly revised estimate of 578,000 in May. The rate is also 5.8% below the June 2009 rate of 583,000. Single-family hosing starts in June were at a preliminary rate of 454,000, down 0.7% from the downwardly revised May rate of 457,000. The preliminary June rate for buildings with five or more units was 88,000, down 19.2% from the downwardly revised May rate of 109,000. The decline in housing starts estimates comes on the heels of news that homebuilder confidence plummeted over the past two months over concerns of tight credit standards, prospective buyer disinterest and continued competition from distressed and foreclosure properties. Paul Dales, a US economist at Toronto-based Capital Economics, wrote that with little demand and lots of excess supply, its not surprising housing starts are down, noting homebuilding has only ever been lower in four months during early 2009. Housing starts peaked in April after a fourth-month-long run of housing starts increases, but even then, with permit applications down, it was apparent the run would not continue for long. One month later, estimates at the time had housing starts down 10% and permits down 5.9% for May. After two months of declines, a boost to multifamily construction pushed building permit authorizations up slightly in June. Privately owned housing units authorized by building permits in June were at preliminary seasonally adjusted annual rate of 586,000, the report said. That’s 2.1% above the May revised rate of 574,000, but 2.3% below the June 2009 rate of 600,000. Single-family permit authorizations in June were at a preliminary rate of 421,000, 3.4% below the revised May rate of 436,000. Permits for buildings with five or more units were at a preliminary rate of 145,000 up 16.67% from the upwardly revised May rate of 120,000. The multifamily sector experienced a sharp swing in June, with a double-digit drop in starts and a double-digit increase in new permits. Some have questioned the future performance of the sector, including a Credit Suisse report that said while real estate investment trusts (REITs) that specialize in apartment buildings are far exceeding other types of REITs in 2010, a number of headwinds may slow the sector’s continued momentum for the rest of the year. In addition, Fitch Ratings reported that in June, the multifamily delinquency rate for commercial mortgage-backed securities (CMBS) rose to 13.82%, from 13.65% in May. Prospective homebuyers originally had until June 30 to close on a deal and retain eligibility for the homebuyer tax credit. Despite the deadline’s extension, there appears to be a last-minute push to get new house construction done so buyers could close in time. The report said housing completions were at a preliminary seasonally adjusted annual rate of 886,000, up 26.2% above the upwardly revised May rate of 702,000 and 11% above the June 2009 rate of 798,000. “The previous increases in starts ahead of the expiry of the tax credit means that residential investment probably increased at an annualized rate of around 10% in the second quarter, reversing all of the 10% fall seen in the first quarter,” Dales wrote. “What’s more, the 2.1% month-over-month rise in building permits to 586,000 in June, the first gain in three months, suggests that housing starts may have now reached a floor.” Single-family housing completions in June were at a preliminary rate of 676,000, up 31.3% from the upwardly revised rate of 515,000. The June preliminary rate for units in buildings with five or more units was 202,000, up 11% from the upwardly revised May rate of 182,000. “With high unemployment and tight credit likely to keep demand subdued and more foreclosures set to add to the already high number of unsold homes, homebuilding activity is going to remain weak for a long time,” Dales wrote. Write to Austin Kilgore.