Big Drop in Housing Starts Suggests a More Shaky Recovery: BNP Economist

June housing fell 9.9% to an annualized 836,000, the lowest level since August 2012 and far below what economists had expected. The current housing data points to "really weak residential investment" which "implies further downside risk to the economy."

By Bernice Napach
July 17, 2013
Yahoo! Finance

Housing starts were like a Debbie Downer Wednesday morning, bringing negativity to the housing recovery party. June housing starts fell 9.9% to an annualized rate of 836,000—the lowest level since August 2012 and far below what economists had expected.

“Today’s report was really surprising,” says Yelena Shulyatyeva, U.S. economist for BNP Paribas. “We should be more cautious about our optimism.”

The drop in housing starts was led by a decline in multifamily construction, which fell 26.2% versus 0.8% for single-family houses. Recent housing data has been bullish: The National Association of Home Builders reported a big jump in bullish sentiment for July; that followed strong gains in May home sales. Existing home sales climbed to their highest level since November 2009 and new home sales were at their highest level since July 2008.

Even Fed Chairman Ben Bernanke is impressed with the recovery in housing.

In prepared remarks to Congress today, Bernanke said that “housing has contributed significantly to recent gains in economic activity,“ adding to job growth, household finances and consumer spending.

Shulyatyeva tells The Daily Ticker that housing will probably remain a “bright spot” for the economy though today’s housing data points to “really weak residential investment” which “implies further downside risk to the economy.”

Rising mortgage rates will contribute to the slowdown, says Shulyatyeva. The rate on a 30-year fixed mortgage is now near 4.5%, according to Bankrate.com. Rates at 5% or above could drive potential homeowners into the rental market, says Shulyatyeva.

She “respectfully disagrees" with Bernanke’s prepared remarks that “housing activity and prices seem likely to continue to recover, notwithstanding the recent increases in mortgage rates.”

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