U.S. housing starts slip in July

U.S. housing starts declined by 1 per cent in July, ending a two-month winning streak.

The U.S. Commerce Department said Tuesday that new home construction fell 1 per cent last month to a seasonally adjusted annual rate of 581,000 units, from an adjusted rate of 587,000 in June. Economists were looking for a 600,000-unit pace.

At 479,000 units, the all-time low was reached in April 2009.

Despite missing expectations, watchers viewed the housing data as a largely positive development.

"On the optimistic side, it appears that residential construction activity may have stabilized to a degree," TD Economics strategist Ian Pollick wrote in a note. He was expecting 615,000 starts, but noted that much of the decline came from apartment construction, which declined by 13 per cent.

Construction of single-family homes rose by 1 per cent to the highest level since October 2008, for the fifth straight monthly increase. Single-unit construction accounts for three-quarters of the market.

"At the end of the day, the U.S. housing market seems to be starting to improve, though there is much work ahead to alleviate the current problems in that market," Pollick wrote.

Modest recovery

Builders slammed the brakes on construction after the housing bubble burst, and in April housing starts plunged to the lowest point in half a century. From that trough, a modest recovery began before the figures slipped again last month.

July's housing data was 38 per cent below where it was this time last year, suggesting the industry is still a long way from non-recession levels.

Applications for building permits, an indicator of future activity, fell 1.8 per cent to an annual rate of 560,000 units. Economists expected an annual rate of 580,000 units.

While numerous signs have emerged that the U.S. housing market has stabilized after the worst housing recession since the Great Depression, there are several threats to any recovery.

The unemployment rate, now 9.4 per cent, is expected to surpass 10 per cent, leaving more homeowners unable to pay their mortgages. Interest rates are still at attractive levels but they could rise, making buying a home less affordable.

And the industry has seen a temporary demand increase from consumers who want to take advantage of a new federal tax credit for first-time homebuyers. It covers 10 per cent of a home price up to $8,000. That credit is set to expire at the end of November.

Atlanta-based home improvement retailer Home Depot Inc. announced lower profits on Tuesday, blaming housing market woes for the drag on earnings. On Monday, Lowe's Companies Inc. also blamed consumer unwillingness to take on "discretionary projects" like renovations for a drop in profit.

Both companies are seen to be closely linked to fluctuations in the housing market.