* Housing starts drop 9.9 percent to lowest since August
* Permits fall 7.5 percent, multifamily segment a drag
* Rainy weather in some parts of the country may be a factor
By Lucia Mutikani
WASHINGTON, July 17 U.S. housing starts and
permits for future home construction unexpectedly fell in June,
but the decline in activity was likely to be short-lived against
the backdrop of bullish sentiment among home builders.
The Commerce Department said on Wednesday housing starts
dropped 9.9 percent to a seasonally adjusted annual rate of
836,000 units. That was the lowest level since August last year.
Economists, who had expected groundbreaking to rise to a
959,000-unit rate, shrugged off the decline and said wet weather
in many parts of the country had dampened activity. They noted
that much of the drop was in the volatile multifamily segment.
"It looks like it's weather-related," said Sam Bullard, a
senior economist at Wells Fargo Securities in Charlotte, North
Carolina. "On the surface it doesn't look good, but we are
confident that starts activity is still going to climb higher in
the months to come."
Permits to build homes fell 7.5 percent last month to a
911,000-unit pace. Economists had expected permits to rise to a
1-million unit pace.
Though it was the second straight month of declines in
permits, they remained ahead of starts. Economists said this,
together with upbeat homebuilder confidence, suggested
groundbreaking activity will bounce back in July and through the
remainder of this year.
Sentiment among single-family home builders hit a 7-1/2 year
high in July, a report showed on Monday, amid optimism over
current and future home sales.
That upbeat tone was also captured by a separate report from
the Federal Reserve on Wednesday, which described residential
construction as increasing at a moderate to strong pace across
the country in June and early July.
MORTGAGE RATES STILL LOW
There was little to suggest that a recent spike in mortgage
rates was restraining home building activity, economists said,
pointing to the improving builder confidence. Fed Chairman Ben
Bernanke in his testimony before lawmakers said the central bank
was monitoring developments in the mortgage market.
"Housing activity and prices seem likely to continue to
recover, notwithstanding the recent increases in mortgage rates,
but it will be important to monitor developments in this sector
carefully," Bernanke said.
Housing's recovery is being been aided by the still-low
mortgage rates engineered by the Fed's very accommodative
monetary policy and steady employment gains.
Mortgage rates increased in recent weeks after the U.S.
central bank expressed its desire to start cutting back on its
bond purchases later this year. The monthly $85 billion in bond
purchases have been holding down interest rates.
Bernanke said the central bank still expected to start
scaling back its massive asset purchase program later this year,
but left open the option of changing that plan in either
direction if the economic outlook shifted.
U.S. financial markets were little moved by the housing
data, taking their cue from Bernanke's comments. Stocks on Wall
Street were trading mostly higher. U.S. Treasury debt prices
rose and the dollar advanced against a basket of currencies.
Last month, groundbreaking for single-family homes, the
largest segment of the market, slipped 0.8 percent to its lowest
level since November 2012. Starts for multi-family homes
declined 26.2 percent to a 245,000-unit rate.
Starts were down in all four regions in June, with big
declines in the Northeast, South and the Midwest.
Weak groundbreaking suggested a smaller boost to both second
and third quarter gross domestic product from residential
construction. Second-quarter GDP growth estimates are ranging
between 0.5 percent and 1 percent.
The economy grew at a 1.8 percent annual pace in the first
three months of the year.
Permits for multi-family homes fell 21.4 percent last month.
But permits for single-family homes rose 0.6 percent to their
highest since May 2008, a hopeful sign for future construction.
"Since builders are under-supplying the market, inventories
are likely to get leaner in the months ahead, and prices are
likely to accelerate," said Patrick Newport, an economist at IHS
Global Insight in Lexington, Massachusetts. "This will bring
more builders into the market."