Providing further evidence that the downward correction in the housing market continues, U.S. Commerce Department data released for July indicates that home builders started work on new housing units that month at the slowest pace since January 1997. The government report indicated that total housing starts declined 6.1 percent to a seasonally adjusted annual rate of 1.38 million units in July.
“Builders are doing exactly what they should be doing at this point to work down their inventories and help the market get back on track – producing fewer new homes, pulling fewer permits for future projects, and stepping up buyer incentives to move unsold inventory,” said Brian Catalde, a home builder from El Segundo, Calif. and president of the National Association of Home Builders (NAHB).
“The numbers in today’s report are right in line with NAHB’s latest housing forecast and with the eroding builder confidence highlighted by our recent surveys,” said NAHB Chief Economist David Seiders.\“Declining starts and permits clearly reflect deepening problems in the mortgage market which erupted earlier this year in the subprime sector and now have spilled over into other components of housing finance – including the Alt-A and jumbo markets. These problems are deepening the housing downswing, delaying the subsequent recovery and adding significant uncertainty to our forecast.”
Single-family housing starts were down 7.3 percent for the month to a seasonally adjusted annual rate of 1.07 million units, the slowest pace since December of 1996, while multi-family starts fell 1.6 percent to a 311,000-unit rate.
Meanwhile, building permits, which can be an indicator of future building activity, declined 2.8 percent to a seasonally adjusted annual rate of 1.37 million units – the lowest since September of 1996. Single-family permits were down 1.6 percent to a rate of just over one million units, and multi-family permits were down 6.1 percent to 370,000 units.
On a regional basis, housing starts declined 1.3 percent in the Northeast, 11 percent in the South and 3.7 percent in the West. Starts rose 2.6 percent in the Midwest, due entirely to a gain on the multifamily side. On a year-to-date basis, starts were down substantially in all regions of the country.
“While there is no immediate rebound in sight, NAHB is currently expecting new-home sales to stabilize by the end of this year and housing starts to stabilize by the middle of 2008,” said Seiders. “We expect overall economic conditions, including solid job and income growth, to continue to be supportive of housing.
“Furthermore, we expect interest rates in government-related components of the mortgage market to remain favorable on a historical basis, and we’re assuming that other parts of the housing finance system will regain footing before long. Downside risks definitely surround the latter assumption.”