Zacks_Analysts' Blog : Poor Housing Performance in July - Analyst Blog

The building industry continues to be weak despite the ongoing economic recovery in the U.S. Both housing starts and applications for building permits fell during July, indicating a slow pace of future home construction.

Housing starts in July fell 1.5% to a seasonally adjusted annual rate of 604,000 as compared with the revised June rate of 613,000 housing starts. However, the drop was almost 4% from the originally reported 629,000 housing starts in June this year.

On the other hand, applications for building permits fell 3.2% to a seasonally adjusted annual rate of 597,000 from the revised June rate of 617,000. However, June's building permits rate was originally reported at 624,000.

Poor employment growth, increased availability of foreclosed homes, strict mortgage lending rules and rock-bottom confidence have kept demand for new homes at low levels. The homebuilders are forced to sell properties at lower prices given the excessive availability of unsold repossessed properties in the market. This has affected their earnings in the recent quarters and is also feared to have unfavorable effects on their future business prospects.

Home sales in the last reported quarter fell for almost all the big homebuilders of the country including DR Horton Inc. (DHI), PulteGroup, Inc. (PHM), Meritage Homes Corporation (MTH), Louisiana-Pacific Corporation (LPX) and KB Home (KBH). The building materials industry also felt the heat driven by lower demand for aggregates, asphalt and cement.

However, most of these companies succeeded in improving their earnings to some extent, mainly because of efficient cost management and production efficiencies. But the overall condition in the housing market is a matter of serious concern for the companies going forward.