Housing starts improved slightly in June over May figures but remain well below levels one year ago.

According to a joint release from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, housing starts in June were at a seasonally adjusted annual rate of 1,467,000 units. This is 2.3 percent higher than the 1,434,000 figure for May and a whopping 25.2 percent below the revised figure of 1,819,000 for June, 2006.

Single-family housing starts were substantially lower than starts as a whole with new residential construction in the 5-units-or-more category picking up the slack. SFR construction was down 0.2 percent from May but larger projects jumped up 12.9 percent from the earlier month.

The scenario was even worse in the permit category. While not all areas of the country require permits for construction, where they are required those permits were down 7.5 percent from the revised May rate of 1,520,000 units to 1,406,000 units. This is 25.2 percent below the June 2006 estimate of 1,879,000. Permits issued for single family construction were down 4.1 percent while permits for two to four unit and five plus unit projects were down 18.8 percent and 14.8 percent respectively.

The decline in permitting is at least allowing builders to reduce their permit backlog. In June there were 206,800 permits for construction that had not been acted upon compared to 213,800 the previous month.

The homebuilding industry is obviously in distress (Pulte, one of the nation's largest residential builders announced on Tuesday it anticipated booking second-quarter impairment and land-related charges in the range of $740 million and $770 million on a pre-tax basis, about $1.85 to $1.92 a share after taxes.) But, in testimony before the House Financial Services Committee, Federal Reserve Chairman Ben Bernanke made an interesting statement about employment in the home-building industry. Remarking that there was a bit of a "puzzle" about government unemployment reports which do not indicate a significant decline in construction employment he said this anomaly might indicate that many construction workers have moved from homebuilding to commercial construction or home remodeling.

If Bernanke is right about the alternate employability of construction workers, their bosses are not resting as easily. The monthly report on builders' confidence sponsored by the National Association of Home Builders (NAHB) and Wells Fargo just hit its lowest level since January, 1991.

The NAHB/Wells Fargo Housing Market Index released on Tuesday showed a decline of four points since June to a recent record low of 24.

This monthly survey which has been conducted for more than 20 years measures builder perceptions of the market on three scales and an overall index. Builders are asked to measure current single-family home sales and expectations for sales over the next six months each on a three point sale of good, fair, or poor. Builders are also asked to rate current buyer traffic from very low to very high. The responses are used to construct three topic indexes and an overall index. Any sector subtotal or index total over 50 indicates that more builders view sales conditions as good than poor.

The three component indexes declined in July. Perceptions of current single-family sales and the index gauging sales expectations in the next six months each declined five points to 24 and 34, respectively, while the index gauging traffic of prospective buyers declined three points to 19. As stated above, the overall HMI registered 24.

Likewise, all four regions of the country posted declines in the July HMI. The Northeast and South each saw five-point declines, to 31 and 26, respectively, while the Midwest slipped a single point to 19 and the West declined three points to 25.

NAHB Chief Economist David Seiders, commenting on the survey said, "The bottom line is that the single-family housing market is still in a correction process following the historic and unsustainable highs of the 2003-2005 period. Builders are actively trimming prices and offering buyer incentives to work down their inventories, but meanwhile there is a large supply of vacant existing homes on the market, and affordability problems persist despite efforts to attract buyers.

"In spite of these challenges, we expect to see home sales get back on an upward path late this year and we expect housing starts to begin a gradual recovery process by early next year. At that point, this market will be operating well below its long-term potential, providing plenty of room to grow in 2008 and beyond."

In other housing news, Standard & Poor's downgraded an additional 418 classes of residential mortgage backed securities (RMBS) on top of the hundreds of others it downgraded earlier this month. These securities were closed end (as opposed to equity lines) second mortgage liens issued between January 2005 and January 2007. The loans underlying the securities were originally worth $3.8 million and represented 6.1 percent of that type of security rated by S&P during that time period.

S&P stated that higher losses than expected on closed-end, second-lien home loans were part of the problem but that the difficulty homeowners were having and will continue to have refinancing these loans is exacerbating the situation.