The Commerce Department this morning (August 16) said housing starts for the month of July were down 6.1% from June and 20.9% from July, 2006, a much larger drop than analysts on Wall Street were expecting.

Single-family starts in July were down 7.3% from June to at a rate of 1,070,000. The July rate for units in buildings with five units or more was 275,000.

The data, released jointly by the Census Bureau and Department of Housing and Urban Development, shows that July permits also were off from June, albeit by a lower percentage than starts, down 2.8%. Permits were down 22.6% from last July's revised estimate.

Single-family permits were at a rate of 1,003,000, 1.6% below June.Authorizations of units in buildings with five units or more were at a rate of 314,000 in July.

Completions were down 0.1% from June to 1,512,000, 22.2% below last July. Single-family completions were down 4% from June to 1,203,000. The July rate for buildings with five units or more was 280,000.

Regionally, starts were -1.3% in the Northeast; 2.6% in the Midwest; -11.0% in the South; and -3.7% in the West. Year-over-year, those numbers are, starts were up 6.1% in the Northeast; -17.5% in the Midwest; -26.3% in the South and -21.5% in the West.

Permits were -1.3% in the Northeast; -7.5% in the Midwest; +0.4% in the South; and -2.7% in the West. Year-over-year, they were down across the board, with the Northeast down 12.5%; the Midwest down 22.2%; the South down 25.6%; and the West down -20.7%.

Reaction to the Commerce Department report was negative. Michael Rehaut and the home building research team at J.P. Morgan Securities said in a research note, "Given the lack of a positive catalyst over the next few quarters, and our outlook for order trends, can rates, pricing, and land charges to remain challenging, if not worsen, we believe near-term incremental downside is likely."

Carl Reichardt and the home building research group at Wachovia Capital Markets put out a note stating, "With stubbornly high inventories of existing and new homes in the marketplace and lackluster demand, the supply/demand imbalance in the housing market remains fully intact. In order to re-establish equilibrium the market needs to begin absorbing those homes already completed or in construction faster than the pace of new additions. Today's housing starts and permits, both of which are at levels not seen in over 10 years, are indications that new construction continues to slow in response to this need for absorption of completed and already started homes. While we believe these data suggest that the housing slump will persist for the near future, over the longer run, this rebalancing is a necessary step."