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"A 2 million starts rate is not sustainable, but something on the order of 1.8 million or 1.9 million is," stated Bobby Rayburn, president of the National Association of Home Builders (NAHB). "Our builder surveys indicate that they are very confident about the future. The market fundamentals remain healthy, with strong consumer demand, lean inventories, and a favorable interest rate structure."
"When interest rates began to rise in April and May, buyers jumped into the marketplace, creating an unsustainable surge in the single-family sector," said David Seiders, NAHB's chief economist. "With rampant speculation in financial markets that the Federal Reserve was about to launch an aggressive process of monetary tightening at the end of June, builders apparently became somewhat cautious, trimming both housing starts and permit issuance during the month.
"However, Fed policymakers ultimately issued a reassuring statement at the conclusion of the June 30 FOMC meeting, and mortgage interest rates have fallen back to below 6 percent since then. This certainly bodes well for housing in the coming months."
Single-family housing starts fell 9.5 percent in June to a pace of 1.489 million. This was a 1.1 percent drop from the June 2003 pace.
"While the June figure is a bit of a surprise, it is still quite strong by historical standards. In fact, we expect single-family starts will post an all-time high in 2004, surpassing last year's record of 1.499 million units," said Seiders.
The pace of multifamily housing starts decreased 3.7 percent from May to a seasonally adjusted annual rate of 313,000 units. This was 9.3 percent below June of last year.
Construction fell in all four regions, posting declines of 3.5 percent in the Northeast, 11.5 percent in the Midwest, 3.1 percent in the South, and 16.5 percent in the West. Permit issuance was down in all regions but the Northwest.
"The backlog of unused permits rose substantially in June, particularly in the single-family sector, as builders reassessed the financial market climate," noted Seiders. "This development should be a positive factor for housing starts in July."
Publication date: 07/19/2004