Housing Starts Disappoint, Analysts Shrug

Before you go, we thought you'd like these...
What happens when there is bad housing news that nobody hears? Is it like the proverbial tree falling in the forest? Does it mean the bad news won't have a negative effect?

New construction of homes dropped by 10 percent in May from the previous month, to a seasonally adjusted 593,000, according to new figures released by the U.S. Commerce Department. The driver is clear: A 17.2 percent drop in single-family home starts after the expiration of the homebuyer tax credit at the end of April. The outlook isn't great, either. Building permits for new homes dropped 5.9 percent.

The data looks bad from almost every angle. The level of new home starts, at 593,000 units, is at its lowest since December 2009, while the rate of decline was the sharpest since March 2009. The drop in single-family home construction is the steepest since January 1991.

But while the figures were worse than most analysts polled by Thomson Reuters had expected, many experts are shrugging them off.
"Builders built ahead so buyers could qualify for the tax credit, so now there's some retrenchment," Celia Chen, an economist at Moody'sEconomy.com, tells AOL HousingWatch. "I don't think that's anything unexpected."

Chen argues that the statistics on housing-starts tend to be volatile, adding that inventory of new homes for sale currently is near record lows, which should give homebuilders an opportunity to pick up construction later this year.

John Burns, a real estate consultant in California, agrees. The 10 percent plunge, he argues, is simply a hangover of supply: Homebuilders completed too many homes which they didn't sell in April, so in May they were working on getting rid of those before starting new projects.

"I don't think it's a big deal," Burns tells AOL HousingWatch. "I know the consensus was expecting better numbers, but the consensus was absurd."

These arguments make sense of course. But what if the experts are wrong? After all, the National Association of Home Builders released a dismal June confidence survey on Tuesday. If housing starts were weak in May because builders have too much inventory; and in June they weren't feeling confident about getting rid of their inventory, that's not a very good start to the summer.

Jeff Rosen, an economist at Briefing.com, tells AOL HousingWatch that there's a chance the summer will bring very bad news. He argues that exceptionally strong housing starts between December and April have resulted in a glut of inventory that's likely to hit the market around October. Combined with the existing supply of foreclosures, this inventory might drag down the market again unless housing demand significantly picks up.

But looking at one housing-start survey doesn't say much about where we're headed. Indeed, it says more about where we've been -- and we don't need a survey to tell us it's been rough. Here's hoping the experts are right.








Read Full Story

Find a Home

Buy
Rent
Value
Powered by Zillow

People are Reading