In June 2011, US housing starts rose by a robust 14.6%m/m to 629 000. This was well above market expectations for a rise of only 2.7%m/m. Housing starts reached a record low of 478 000 in April 2009, and have since increased by a total of 31.6%. Despite the 31% increase, the overall level of housing construction is still dramatically below the 2006 peak level of over 2.2 million (see chart attached). It will probably take the housing market many years to re-gain the previous peak (see discussion below).
Housing permits also rose more than expected in June 2011, up 2.5%m/m to 624 000. The market was expecting a decrease of 2.3%m/m. There is a reasonably close relationship between the growth in building permits and housing starts. Overall, building permits also remain extremely depressed and close to the record low of 513 000 recorded in March 2009.
Despite the better than expected data on housing starts, a wide range of US housing indicators continue to confirm that the housing market is extremely depressed, with almost no clear sign of revival or sustained improvement (see the charts attached).
In particular:
- US new home sales are still close to their record lows and well below the peak achieved in 2005.
- US existing home sales are still very volatile and struggling to gain any significant traction. A recovery in existing home sales is crucial to clear the current over-supply of housing and to help stabilise prices.
- US housing starts and housing permits, while better than expected in June, remain extremely low overall, and far below previous peaks.
- US home vacancy rates remain high, totalling almost 14.3 million homes.
- US house prices have declined for 10 consecutive months; following a brief improvement in late 2009 and early 2010. In total, housing prices have fallen by more than 30% since the peak in 2006.
- US home ownership levels continue to fall, aggravated by the still high level of house repossessions/foreclosures.
- US employment in the building/construction sector has shown absolutely no sign of improvement.
More positively, US mortgage rates remain extremely low. This, coupled with the decline in house prices and improvement in household income, means that housing is essentially the most affordable it has been since the affordability index started in 1981 (the higher the affordability index the more affordable housing has become). Hopefully, the improved affordability will provide the basis for a sustained recovery in the coming months/years.
As we have indicated on many previous occasions, the weakness in the US housing market appears structural in nature and is clearly acting as an impediment to recover/growth, given its importance to household wealth and consumer confidence. Furthermore, it will probably take the US housing market many years to fully recover from the credit crisis.
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