Housing Takes A U-Turn: New Starts Higher

The housing market may be showing signs of life.

New construction of U.S. houses surged in June to its highest level in five months, the Commerce Department reported this morning. Starts moved 14.6% higher in June to a seasonally adjusted 629,000 annualized units, stronger than the 580,000 pace expected by consensus estimates. Building permits, an indication of future housing construction, rose 2.5% to a seasonally adjusted annual rate of 624,000. This is the highest level of permits since December.

The figures are an indication that the moribund market which has devastated the construction industry for three years may have turned a corner. It is rare that builders risk their own capital to begin homes if they do not think their local markets are receptive to new development.

S&P/Case-Shiller data posted earlier in the month showed home prices among the top 20 markets still moving down. Robert Shiller has predicted that the market may lose another 10%. RealtyTrac, the mortgage research firm said last week that foreclosures rose from May to June. The firm expressed concern that when the robo-signing debacle ends, banks will begin to clear foreclosed inventory again which will push another 2 million unsold homes onto the market.

Into those negative prevailing winds, builders must believe that the conventional wisdom is wrong. That is what the Commerce Department data show, at least for this month.

Douglas A. McIntyre