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July housing starts registered a bit weaker than expected Thursday, raising questions yet again about the state of the U.S. housing market.
Last month housing starts fell 1.1 percent from June to a seasonally adjusted 746,000, the Commerce Department reported. Construction of single-family homes fell 6.5 percent to the slowest pace since March, but multi-family home construction grew 12.4 percent.
Despite the slowing month-over-month rate, there's a better way to look at the numbers says Calculated Risk's Bill McBride, a long-time housing bear turned bull at the beginning of this year.
Single-family starts are up 21.5 percent from 2011 and overall starts are up 17 percent from last year, which is part of the reason why McBride remains optimistic about a housing rebound.
After four years of some of the weakest housing construction growth in U.S. history (the government began tracking the data in 1959), "a 20 percent growth rate is pretty solid" at a time when growth has slowed, says McBride.
Additionally, housing permits jumped roughly 7 percent, making July the first month since the recession began that the monthly increase in permits topped 800,000.
When most people think of a housing bottom they think in terms of price, but there is more to it, says McBride.
For him, a bottom in housing comes in two parts. First in housing activity — like housing starts, new home sales and residential investment — and second in home prices.
"For housing activity I think there is a clear bottom," McBride says in the accompanying video. "It was a long flat bottom over multiple years" and "housing starts and new home sales... are just slowly going up."
As for home prices, "I think we've turned that bottom too" and it happened in "February or March of this year," he says. Home prices have increased sequentially for the last four months, according to the S&P Case-Shiller Index.
Those who remain bearish on housing often cite a buildup in shadow inventory. Perma-bear Gary Shilling of A. Gary Shilling recently told The Daily Ticker he predicts another 20 percent decline in prices when foreclosed homes come on the market. Shilling also says there are many homeowners who are waiting to sell their homes for a higher price, which will add further pressure on the market.
McBride feels that the country's shadow inventory has already peaked and the excess inventory won't have a dramatic downward pressure on prices, he says. Many of the nation's pending foreclosures are in states where a court action is required to foreclose on a home, he adds.
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