Housing Starts Are Flat in June; Groundbreaking Permits Rise 2.4%

U.S. housing starts were flat in June but permits for future construction shot higher, indicating that groundbreaking could increase in the months ahead, a Commerce Department report showed Tuesday.

“The housing sector remains very strong,” said David Resler, chief economist at Nomura Securities International in New York. “Building permits are strong and it’s more encouraging news for the general economy.”

The Commerce Department said June housing starts came in at a 2.004 million unit annual rate, unchanged from May, which saw starts revised down from an originally reported 2.009 million unit pace.

Wall Street economists had expected housing starts to increase to a 2.045 million unit pace in June.

Single-family housing starts dropped 2.5% to a 1.667 million unit annual pace. But that was offset by multifamily starts, which rose 14.2% to a 337,000 unit rate, the report said.

Permits for future groundbreaking, an indicator of builder confidence, rose 2.4% to a 2.111 million unit pace. That exceeded economists’ expectations for an increase to a 2.080 million unit pace in June from a 2.062 million unit pace in May.

“The housing market is still rock solid and with permits rising, construction should remain strong for months to come,” said Joel Naroff, chief economist at Naroff Economic Advisors.

“Someday, the housing market will cool. But that day has yet to come. Housing starts were robust in June even though single-family activity faded a touch,” Naroff said.

Low mortgage rates have supported the housing sector for more than four years. Even though the Federal Reserve has raised its target for short-term interest rates, long-term rates have remained low. In fact, average 30-year fixed-rate mortgages are lower than a year ago, according to Freddie Mac.

While economists had predicted some slowing in the housing sector in 2005, housing starts and sales have remained robust and shown little sign of easing.

Many economists have said housing will remain strong until mortgage rates rise significantly despite skyrocketing prices that have advanced by double-digit percentages in some areas and led Fed Chairman Alan Greenspan to warn of “froth” in local real estate markets.

For June, housing starts rose 11.4% in the South but fell 12.1% in the Midwest, 10.4% in the West and 0.5% in the Northeast.