Dip in Housing Starts: Blame It On the South

July 18, 2014

Housing production fell 9.3 percent nationwide in June, with indications that the South is the main culprit. Housing starts dropped sharply — by nearly 30 percent — in the South, pushing overall nationwide housing production down last month, the Census Bureau reports. Other regions posted gains in June.

"Take away the South and nationwide housing starts would have been in positive territory this month," says David Crowe, chief economist at the National Association of Home Builders. "This sharp regional decline could be due in part to lots and labor shortages, which are particularly acute in that part of the country. However, the general direction of housing production is trending upward, and we expect 2014 to be a positive year."

In other regions across the country, multifamily and single-family housing production rose by 14.1 percent in the Northeast; 28.1 percent in the Midwest; and 2.6 percent in the West. Meanwhile, overall production dropped by 29.6 percent in the South, which is also the nation's largest region.

Nationwide, single-family housing permits, a gauge of future building activity, rose 2.6 percent in June. That "falls in line with general optimism that we are hearing from our builders," says Kevin Kelly, chairman of NAHB. This week, NAHB reported that builders' confidence about the sector rose to its highest level since January.

However, after the second consecutive month of drops in new-home starts, some housing analysts aren't as confident.

"This was a hugely disappointing report, especially in light of the substantial increase in new-home sales during May, a pick-up in homebuilder confidence to a six-month high, and mortgage rates that have recently tracked lower," Michael Dolega, senior economist at TD Economics, told USA Today. Dolega says he believes the sector will turn around in the coming months as job growth and falling unemployment rates increase wages and open more people up to home ownership.

During the first half of this year, housing starts were up 6 percent from year-ago levels. However, most of that growth has been in the apartment sector. Groundbreaking for new multifamily units is up about 18 percent in the first half of this year compared to only 1.2 percent in single-family home construction.

Source: National Association of Home Builders and “Housing Starts Sink to Slowest Pace in 9 Months,” USA Today (July 17, 2014)