US mortgages dip as virus hits, February homebuilding solid
Construction of new homes in the United States fell for the second straight month in June as builders erected fewer apartments in the West and South, according to data released Wednesday. And the pace looked set to slow even further as permits for new construction of much needed homes took an unexpected tumble to the lowest in just over two years, also led by steep drops in the West and South. The housing sector is a key segment of the US economy, helping drive consumer spending and serving as one barometer of economic wellbeing. But while construction was marginally stronger in the second quarter than at the start of the year, it is not keeping pace with demand. The Commerce Department reported that home construction fell 0.9 percent in June compared to May, dropping to an annual rate of 1.25 million, seasonally adjusted. That fell short of economists' expectations and was more than six percent below June of last year.. Permits for new construction projects fell six percent, to the lowest level since May 2017, and 6.6 percent below the year-ago level. The weakness for permits was all in the volatile apartments segment, however, which plunged nearly 21 percent in the months and is 13 percent below June 2018. Officials warn the monthly data are subject to broad margins of error and say six months should elapse before a trend can be established. Despite low unemployment, rising wages and falling mortgage rates, sentiment among homebuilders in the United States has been tame in recent months. Analysts blame labor shortages and rising costs for materials. Economists said the housing market was likely to pickup in later in the year to meet pent-up demand. Amid rising mortgage applications, "we expect home sales to reach new highs in the late summer or early fall, dragging up housing construction in due course," Ian Shepherdson of Pantheon Macroeconomics said in a research note.

Fewer Americans filed for home loans last week as the coronavirus hit, according to industry data released Wednesday, in the latest disruption caused by the pandemic that's transformed the US economy.

That could have implications for a US housing market that was steaming hot before the virus hit, with government data for February showed homebuilding continued at a solid pace, sharply higher than a year ago.

Mortgage applications for the week ending on March 13 fell by 8.4 percent, seasonally adjusted, compared to the week earlier, while refinancing decreased 10 percent, according to data from the Mortgage Bankers Association.

"The ongoing situation around the coronavirus led to further stress in the financial markets late last week, with unprecedented volatility and widening spreads," said Joel Kan, MBA vice president of economic and industry forecasting.

That data was compiled before the US Federal Reserve slashed its key lending rate to zero at an emergency meeting Sunday to help cushion the blow from the pandemic which is causing the economy to come to a screeching halt.

Kan said the rate cut "should help to bring down mortgage rates in the coming weeks, spurring more refinancing."

Meanwhile, the Census Bureau said housing construction started last month slowed less than expected compared to January, dropping 1.5 percent to 1.6 million compared to January, whose numbers saw an upward revision. That rate was 39.2 percent above February 2019.

Single-family housing starts were still strong, climbing 6.7 percent above January to 1.1 million.

Permits for new construction -- a sign of housing in the pipeline and a less erratic indicator -- fell 5.5 percent, though single-family homes posted an increase there, too.

"Starts have been lifted in recent months by the much milder-than-usual winter weather, which persisted through February," said Ian Shepherdson of Pantheon Macroeconomics, adding that the rise in single-family permits is the 10th straight month of gains, thanks to strong home sales.

But he expects to see a correction in next month's data as weather normalizes and the virus takes hold.

Though the sector may not be as badly affected as other consumer-dependent areas, "the next few months will be very rough," Shepherdson said.