U.S. homebuilding fell again in June for its second straight month and permits have dropped to a two-year low, despite lower mortgage rates.

The Commerce Department reported that housing starts fell 0.9% to a seasonally adjusted annual rate of 1.253 million units last month, but were 6.2% above the June 2018 rate of 1.18 million.

Mortgage rates have declined since the U.S. Federal Reserve indicated it would not raise interest rates again this year. The 30-year fixed mortgage rate has dropped from a peak of about 4.94% in November to around 3.75%. But that did not appear to spark increased home construction.

“Residential housing construction is one of the leading indicators of a recession and while construction activity isn’t dropping precipitously, housing is stuck in a rut,” said Chris Rupkey, chief economist at MUFG in New York. “If the Fed thinks rate cuts are going to send housing construction up like a rocket, they better think again.”

Single-family homebuilding, the largest share of the housing market, increased 3.5% to 847,000 units in June. Authorizations of units in buildings with five units or more were at a rate of 360,000 in June.

Building permits fell 6.1% to a rate of 1.220 million units, the lowest level since May 2017. Permits are weak this year, with the decline concentrated in the single-family housing segment.

In light of recent reports from Federal Reserve Chairman Jerome Powell, it appears that the Federal Reserve plans to cut interest rates this month, the first time in a decade. Analysts say this could lead a surge in homebuilding.

Powell said that the nation’s homebuilders are facing “a series of factors that are really holding them back and challenging affordability.”

“It’s hard to get lots in many metropolitan areas. You have a lot of homes and traffic and the rules for creating lots are challenging. Material costs too, have gone up and some of that is tariffs,” Powell said. “The homebuilders feel almost like they have been hit by a perfect storm here.

Several spokesmen from the National Association of Home Builders (NAHB), saw a more positive outlook for the future.

“The monthly pick up from May to June in single-family starts is in line with the slight rise in our latest builder confidence survey, as demand remains solid due to a healthy job market,” said NAHB Chairman Greg Ugalde, a Connecticut home builder and developer.

Added NAHB Chief Economist Robert Dietz: “The relatively flat housing starts data in June is due to a decline in multifamily production, which still remains somewhat elevated due to affordability concerns in the for-sale market,” Dietz said.

“The census data show that the only region showing single-family construction gains for the first half of 2019 is in the South,” he said, “where housing is generally more affordable relative to incomes.”
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