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By Geoffrey Smith
Investing.com -- The U.S. housing market stayed reasonably solid in June, according to data published Tuesday, with housing starts and building permits falling only a little from May's levels.
However, analysts warned that the numbers were flattered by a bounce in the more volatile multi-family segment of homes, and warned that a sharp slowdown is still highly likely in the second half of the year, as higher prices and borrowing costs damp demand.
Both data points had plunged in May to their lowest in six months or more, as higher construction costs and mortgage rates hurt affordability. June's data appeared more benign at first glance: the number of housing starts nationwide fell only 2.0% on the month to 1.559 million from an 1.591 million in May - a figure that was revised higher by over 40,000 from the initial estimate.
Building permits, meanwhile, fell by 0.6% to 1.685 million, a more gentle decline than forecast.
However, underneath the headline numbers, analysts said that the trend is clearly weakening.
"Core single-family starts and permits both fell by 8%, the fourth straight declines," said Ian Shepherdson, chief economist with Pantheon Macroeconomics. "Homebuilders are responding to plunging demand, but the adjustment has some way yet to run."
He noted that construction activity lags sales, which in turn lag mortgage applications. These have fallen by more than a quarter since the start of 2022.
"Even if the June flattening is sustained - it probably won’t be - the data suggest that single-family housing construction needs to fall by a further 20% or so over the next few months," Shepherdson said in a note to clients.
The data come a day after the National Association of Home Builders' index of housing market activity posted its largest monthly drop ever. The NAHB index is a forward-looking indicator, which aims to show where the hard data on permits and starts are heading over the next six months.
While both series are now more than 10% off their Covid-era highs, housing starts are still at their highest level since the subprime bubble started to deflate in 2007, while building permits are higher than at any time in the decade before the pandemic.