Housing starts tumble as market headwinds crush momentum

The numbers: Housing starts ran at a seasonally adjusted annual 1.173 million rate in June, the Commerce Department said Wednesday.

What happened: Builders broke ground on far fewer homes in June, signalling more of the stop-start rhythm that’s characterized the uneven housing recovery. June’s pace of starts was 12.3% lower than a downwardly-revised May, and 3.0% lower than year-ago levels.

Economists surveyed by MarketWatch had forecast a rate of 1.303 million.

Permits, which signal future start activity, were at a seasonally adjusted annual 1.273 million pace.

Also read: Goodbye renter nation: Americans still want to be homeowners

Big picture: Buffeted by higher input costs, builders are struggling to give buyers what they want – and many buyers, in turn, may be put off by long wait times for new construction. Sentiment among home builders is treading water, an industry group said Tuesday. That’s a sign that the pace of construction isn’t likely to accelerate much.

The government data on residential construction is based on small sample sizes, which means it’s often revised heavily. In June’s release, starts figures from both May and April were marked down. For the year to date, starts are 7.8% higher than the same period in 2017, and permits are 5.7% higher.

Market reaction: In a note published Tuesday, before the data release, BTIG analysts noted that their BTIG/HomeSphere Builder Survey found sales trends were sluggish in June. One-quarter of survey respondents said they had lower sales volumes than a year ago, while 51% saw traffic that was flat or lower than in June 2017.

“We believe builders are attempting to hold price to maintain margins at the expense of unit volume: 50% raised ‘most or all’ base prices in June, versus in May,” the analysts wrote. Two-thirds of respondents reported increased labor costs, while 86% reported higher material costs.

Those higher prices may be too much for many buyers to swallow, despite robust demand for housing.

Read: We’re probably at peak housing. Here’s what that means.

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