Builder Confidence Rises as New Home Starts Fall

New housing starts in April fell to their lowest level in 50 years, even as home builders are starting to say that things are starting to look up.

The Commerce Department reported today that new housing starts totaled 458,000 units in April, down 13 percent from March and less than half of the more than 1 million starts reported in April 2008. It's the lowest level of new housing construction starts on record, dating back to when the Commerce Department began tracking the data in January 1959.

Homebuilders expect slight improvement

Even so, home builders are starting to feel slightly more optimistic about future prospects, although the overall picture remains bleak. The National Association of Home Builders (NAHB) reported on Monday that builder confidence rose in May for the second consecutive month. The NAHB/Wells Fargo Housing Market Index (HMI) rose two points, to 16, in May, following a five-point gain in April.

The survey gauges builder perceptions of current single-family home sales and sales expectations for the next six months. Any number below 50 indicates that more builders regard conditions as poor rather than good, so the May outlook still remains poor, though not as dismal as before.

Single-family starts increase

Part of the reason for the slight improvement in the outlook is that new construction starts of single-family homes did rise in April, by nearly 10,000 units to 358,000, according to the Commerce Department. April's decline was entirely due to a sharp drop in new construction starts of apartment buildings, which dropped 42 percent, down to 78,000 from 135,000 in March.

"Builders are responding to what they perceive to be some of the best home buying conditions of a lifetime," said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla. "You're not likely to get a better deal in terms of mortgage rates than what's available right now. Combine that with the affordable prices, multitude of home choices and $8,000 tax credit for first-time buyers that are now available, and you have a very appealing set of reasons to make a move."

Existing home surplus a factor

Despite the otherwise favorable conditions cited by Robson, one factor that appears to be keeping a lid on single-family housing starts is an abundance of inexpensive existing homes already on the market and challenges in obtaining financing in tight credit conditions. Foreclosures have resulted in a glut of inexpensive homes driving down prices, with distressed properties constituting up to 50 percent of existing home purchases in recent months, according to the National Association of Realtors. With so many bargains available in existing homes, fewer people are inclined to build a new home to meet their needs.