US housing starts drop 5% in June, seen likely to fall farther

20 July 2010 14:35  [Source: ICIS news]

WASHINGTON (ICIS news)--US new home construction activity fell again in June, the Commerce Department said on Tuesday, dropping by 5% from May as other data indicate the crucial housing sector is set to decline still further.

The department said that housing starts in June were at a seasonally adjusted annual rate of 549,000 units, down 5% from the revised May estimate of 578,000.

The 5% decline in June followed the 10% nose-dive reported for May.

In addition, last month’s new home construction level was even lower than a year ago, down by 5.8% compared with June 2009.

The sharp fall-off in residential construction in both May and June was expected following the expiration on 30 April of an $8,000 (€6,160) federal tax credit for home buyers that had helped stimulate the housing sector for more than a year.

The decline in housing construction also follows a government report of a 33% drop in new home sales for May.

The precipitous decline in new home demand following the tax credit stimulus raises questions about the ability of the housing sector to recover.

For the US chemicals industry, the housing market is a key downstream consumer sector, driving demand for a wide variety of chemicals and chemicals-based products such as plastic pipe, insulation, paints and coatings, adhesives and synthetic fibres, among many others.

 The American Chemistry Council (ACC) estimates that each new home built represents some $16,000 worth of chemicals and derivatives used in the structure or in production of component materials.

The department’s monthly report also indicated that there was no near-term recovery in sight.

Overall building permits rose by 2.1% in June from May to a seasonally adjusted annual rate of 586,000 units, but that gain was due entirely to a nearly 21% jump in permits for multi-unit apartment buildings.

In single-family home construction, the department reported a 3.4% decline in the number of permits issued in June compared with May. This is critical because one-family home construction is considered the core of the housing market.

Building permits are issued by local governments when contractors are ready to break ground and begin construction of a residential structure, so monthly permitting data are seen as a real-time indicator of the housing sector’s near-term prospects.

The gain in multi-unit residential construction permits also is seen as an indicator of the housing sector’s poor prospects, because increased demand for rental apartments is driven in part by former home owners who have lost their properties to bank foreclosures.

Even if multi-unit construction permits are included in the overall figures, the number of residential construction authorisations issued in June was 2.3% below the level of activity seen in June 2009.

US Housing Starts

	June ‘10	May ‘10	May-June ‘10	June ‘09	June ’09 to    June ‘10
US Housing Starts	549,000*	578,000*	- 5%	583,000*	- 5.8%

* Seasonally adjusted & annualised

($1 = €0.77)

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