Housing Starts Hit A 15-Year Low, Still A Drag On Growth

Source: DailyFX

The struggle for the US economy to avoid a negative growth and perhaps even a recession this year is being made all the more difficult by the ongoing correction in the housing market. Construction activity cooled over through the month of May and plans for production going forward look equally bleak. According to the Commerce Department, housing starts dropped 3.3 percent last month to a 975,000-pace - the slowest rate of construction since March of 1991. What's more, building permits - a gauge of future activity - slowed 1.3 percent to a 969,000 annualized clip. The severely depressed sector continues to be plagued by falling property values and rising foreclosure rates. However, conditions continue to worsen as as mortgage rates have yet to sufficiently pass on the benifits of the Fed's aggressive monetary policy easing and consumer sentiment at multi-decade lows has curbed spending habits. Looking into the components of the housing data, ground breaking on both single and multi-family projects fell by 1.0 percent and 8.0 percent respectively. For permits, multi-family units actually rose by 4.0 percent while single-family units fell by an equal amount. Ultimately, a recovery in the housing market my be the difference between a soft landing and a hard landing for the world's largest economy.