Despite rebounding by about 7% in May following a three-month slide, housing starts backpedaled once again in June as they fell by about 5% to 1.850 million units (at an annualized rate), as reported by the Commerce Department. And this was not the only piece of bad news to hit the sector during the month of June, as building permits posted a 4% decline as well.

Indeed, certain parts of the housing market are definitely slowing down, according to Omair Sharif, a strategist at RBS Greenwich Capital. "Although part of the weakness last month can be blamed on harsh weather in the Northeast, it seems that the South and the West, which were the most torrid regions in terms of residential construction activity in the last few years, are showing clear signs of cooling rapidly," he said.

To be more specific, in terms of region, the Northeast saw the biggest decline in starts with a 12% fall, followed by a 10% drop in the West and 4% in the South. The Midwest was the only region that saw an increase in June, as it bounced by 3%.

And what was the main force behind these weak June figures? Single family starts, Sharif said, which declined about 7% and retracted May's rebound. Multifamily starts, in contrast, remained steady for the month. "Within single-family starts, part of the weakness was due to the weather, as torrential rain and flooding in the Northeast in the month (several states received near-record rainfall in June) led to a 33% drop in groundbreaking activity," Sharif explained. Still, there was also softness in the South and West, each dropping 6%, following increases of 9% and 8%, respectively. Again, only the Midwest saw a rise, climbing by 4%.

As for building permits, they are down by about 15% since January, indicating that builders are scaling back their plans for new construction in the face of declining orders and higher cancellation rates. However, the three and six months averages are still below last year's pace, which leads Sharif to believe that the slowdown in residential construction is likely to be gradual.

As a result, Sharif does not predict a collapse in starts or the housing market this year.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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