Single-Family Housing Starts Down Sharply

By:
Kara Johnson | June 16, 2010

Housing construction starts fell 10 percent in May, including a 17.2 percent drop in single-family homes, as buyer interest waned following the end of the federal homebuyer tax credit.
 
According to the Commerce Department’s monthly new residential construction report, released this morning, construction starts on single-family homes in May were at an annual rate of 468,000, down from an adjusted rate of 568,000 in April.
 
At the same time, construction starts on buildings of five units or more, including apartments and condominiums, was up 38.3 percent for the month, to an annual rate of 112,000 units, up from 86,000 units in April.
 
April’s figures on total housing starts were also revised downward, to a 3.9 percent monthly increase, instead of 5.8 percent as originally reported last month. At the same time, May’s annual rate of 593,000 total housing starts represents a 7.8 percent annual increase over the May 2009 rate of 550,000 units.
 
Building permits for single-family residences also declined in May, but less sharply than actual housing starts. Single-family authorizations fell 9.9 percent, to an annual rate of 438,000 units, down from April’s rate of 486,000.  
 
On the other hand, construction permits for residential buildings with five or more units increased in May, up 9.3 percent to a seasonal rate of 117,000, up from 107,000 in April. It should be noted that the smaller figures for multiunit construction and permits tend to be more volatile than the figures for single-family units.
 
The deadline for consumers to finalize purchase offers for homes to qualify for the federal homebuyer tax credit was April 30; analysts have expected at least a temporary downturn in the housing market in the immediate aftermath of the deadline.
 
Demand for new homes is expected to remain suppressed for some time to come, due to competition from a large supply of foreclosed homes on the market. The National Association of Home Builders (NAHB) reported Wednesday that its index of builder confidence fell five points in June, to a rating of 17 on a 100-point scale.
 
The decline followed two consecutive monthly increases and put the index back at the same level it held in Feburary.
 
“The home buyer tax credit did its job in stoking spring sales and we expected a temporary pull back in the builders’ outlook after the credit expired at the end of April,” said NAHB Chairman Bob Jones. “However, the reduction in consumer activity may have been more dramatic than some builders had anticipated, which resulted in their lower confidence levels.”
 
NAHB Chief Economist David Crowe said an improving economy, rising employment, low mortgage rates and stabilizing home values should contribute to an improving housing market over the coming months, but that builders still remain cautious due to factors that could impede a recovery, including problems with obtaining financing and a continued surplus of foreclosed properties and short sales.

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