Residential Construction on Hold

Home builders have had little to be optimistic about. This was reflected in the August NAHB/Wells Fargo Housing Market Index (HMI), which fell from an already low 14 to 13, its lowest level since a reading of 9 in March 2009. - Courtesy of NAHB

With the economy advancing at a snail's pace and consumer confidence rebounding hesitantly, most potential home buyers remain on the sidelines despite low interest rates and affordable house prices. Some banks have tightened their lending standards, making it more difficult to purchase a home.

With little prospect of increased sales on the horizon, builders are reluctant to add to their inventory. Total housing starts in July rose 1.7 percent from 537,000 to 546,000 at a seasonally adjusted annual rate. However, the increase was due totally to volatile multifamily starts, which jumped to 114,000 units, up 32.6 percent from June's depressed rate of 86,000. The July multifamily number is close to the three-month moving average of 110,000, a level that multifamily starts have been bouncing around since March.

July's single-family starts fell 4.2 percent from 451,000 to 432,000, the lowest reading since 406,000 starts in May 2006. The Northeast and Midwest, after two months of decline, saw starts rise by 6.3 percent and 8.8 percent, respectively, while the South and West experienced declines of 5.8 percent and 14.7 percent.

Single-family construction appears to be close to a bottom. Single-family building permits in July slipped slightly from 421,000 in June to 416,000, a 1.2 percent decline. The increase in starts reported by the Northeast and Midwest was not followed up in permits, which fell by 8.2 percent and 8.1 percent, respectively. The South was flat with 215,000 single-family permits while the West rose 6 percent from a low June number.

- Courtesy of NAHB