U.S. housing starts hit their lowest level in eight months in June, further evidence the economy lost momentum in the second quarter, but a rise in permits offered hope that homebuilding was poised to pick up.
The Commerce Department said Tuesday housing starts dropped 5.0 percent to a seasonally adjusted annual rate of 549,000 units, the lowest since October. It was the second straight month of declines in groundbreaking activity and was well below market expectations for a 580,000-unit rate.
May's starts were revised down to show a 14.9 percent decline, previously reported as a 10.0 percent drop. Compared to June last year, starts were down 5.8 percent, the biggest decline since November.
The only positive sign was an unexpected 2.1 percent rise in applications for building permits to a 586,000-unit annual pace. That followed a 5.9 percent drop in May and compared to analysts' expectations for a slip to a 570,000 rate.
"It's not surprising that housing starts declined given the significant inventory of unsold homes and until that inventory of unsold homes comes down we're not likely to see improvement in starts," said Hugh Johnson, chief investment officer at Hugh Johnson Advisors in Albany, New York.
U.S. stock index futures trimmed losses after the housing data while Treasury debt prices held gains. The U.S. dollar was firmer versus the euro and the yen.
Weak building data is the latest in a series of indicators to imply the recovery from the longest and deepest recession since the 1930s took a step back in the second quarter, much earlier than economists had initially anticipated.
They don't believe output is contracting but acknowledge that the risks of a double-dip recession have increased.
The housing market was one of the key triggers of the economic downturn and its recovery has leaned heavily on the government. Following the end of a tax credit for home buyers in April, home construction and sales have dropped sharply.
Housing starts were pulled down last month by a 21.5 percent drop in the volatile multifamily segment to a 95,000-unit annual pace, erasing May's 4.3 percent rise. Groundbreaking for single-family homes slipped 0.7 percent to an annual rate of 454,000 units, the lowest since May 2009.
Home completions surged a record 26.2 percent to an 886,000-unit pace, the highest level since December 2008.
The inventory of houses under construction dropped 5.5 percent to a record low 450,000 units in June while units authorized but not yet started rose 3.6 percent to 91,500.