U.S. Housing Activity Falls amid Tepid Productivity Gains

Less Americans are buying houses and applying for mortgages in a trend that is hurting the new housing and construction industries.

In three separate reports from different agencies and private firms released Wednesday, the United States real estate sector showed marked weakness while manufacturing productivity was significantly weaker than expected.

Less Americans are buying houses and applying for mortgages in a trend that is hurting the new housing and construction industries.

In three separate reports from different agencies and private firms released Wednesday, the United States real estate sector showed marked weakness while manufacturing productivity was significantly weaker than expected.

Economists’ models had previously shown stronger growth in the United States relative to the rest of world as falling commodity prices hurt emerging markets. However, some analysts are revisiting those models as U.S. economic growth slows and Americans are not buying new homes as much as expected.

Building Permits Fall

New building permits for private housing fell 0.7% month-to-month in January to a seasonally adjusted annual rate of 1.05 million units, according to a new report by the U.S. Census Bureau. The agency also noted that privately owned housing starts fell 2% on a month-to-month basis in January, far below expectations.

The hardest hit sector of the real estate market is single-family houses, which saw a 6.7% decline in January on a month-over-month basis, from 727,000 to 678,000. However, those units still rose 16% on a year-over-year basis, thanks largely to an extremely cold January that made for easy comparisons and added to the U.S. GDP’s slowdown.

Analysts had expected 1.07 million starts in January, 5,000 more than the actual figure. However, analysts were correct in expecting greater weakness in single-family units, as more Americans migrate from houses to apartments and condominiums.

Mortgage Applications Slide

While demand for new homes is worsening, mortgage applications are also falling. The Mortgage Bankers Association’s weekly survey of mortgage applications saw a 16% week-over-week decline in refinances and a 7% fall in the purchase index.

MBA Chief Economist Mike Fratantoni attributed the fall to rising interest rates. “Mortgage rates increased to their highest level since the beginning of the year last week, and application volume dropped sharply as a result,” he said in a statement.  Many analysts expect a strong rebound in real estate in 2015, thanks in large part to an improving economy, lower unemployment, and rising incomes. The MBA’s recent study, however, indicates that trend is failing to materialize. 

Weak Production

A Federal Reserve study of industrial production and capacity utilization showed that industrial production rose 0.2% in January after a 0.3% decline in December, while capacity utilization remained unchanged at 79.4%, 0.7 points below the historical average. The relatively weak growth in productivity and flat capacity utilization indicates that factories are not anticipating strong aggregate demand, so they are not increasing capacity.