Builders Rein In New Housing Production

Single-family home builders continued to practice aggressive inventory management in July by slowing the pace of new production nearly 3 percent to a seasonally adjusted annual rate of 641,000 units, according to recent Commerce Department figures. This was the lowest rate of single-family housing starts since January 1991.

“Though some may be inclined to focus only on the negative angle of this report, there is definitely a bright side,” said Sandy Dunn, president of the National Association of Home Builders (NAHB) and a home builder from Point Pleasant, W.Va. “The actions that home builders are taking right now to keep a lid on new production are slowly but surely helping to bring supply and demand back into balance and put us on the road to a much healthier housing market.”

“The single-family numbers in this report are very much in sync with what home builders have been saying in our latest surveys,” noted NAHB Chief Economist David Seiders. “While there is definitely a sense that we are nearing the bottom of the downswing in home sales, builders are not ready to start ratcheting up production just yet — nor should they be, until after sales begin to rebound and the inventory overhang is reduced further. We anticipate that the new first-time home buyer tax credit will help bring about that rebound, and NAHB’s forecast projects that the ongoing contraction in housing starts will end in the first quarter of 2009.”

NAHB has developed a Web site at www.federalhousingtaxcredit.com to explain the first-time home buyer tax credit that was implemented as part of the recently enacted Housing and Economic Recovery Act of 2008.

For the second month in a row, overall housing starts and building permit numbers were skewed by a building code change in New York City that caused an unusually large fluctuation in multi-family activity for the Northeast region.

A 23.6 percent decline in multi-family starts to 324,000 units partially offset a 41 percent gain in the previous month, and contributed to an 11 percent decline in total housing starts for July — dropping the seasonally adjusted annual rate to 965,000 units.

Builders also pulled fewer permits for anticipated new-home construction in July, said the Commerce Department. Single-family permits declined 5.2 percent for the month to a 584,000-unit rate, the lowest since August 1982. Meanwhile, overall permit issuance and multi-family permit issuance, both heavily affected by the New York City data, declined 17.7 percent to 937,000 units and 32.4 percent to 353,000 units, respectively.

Regionally, starts activity was somewhat mixed, with the Midwest posting a 10 percent gain and the South and West each posting 8.2 percent declines, while the Northeast posted a 30.4 percent decline — again due to the New York City numbers. Permit issuance was also mixed on a regional basis, with the Midwest posting a 1.4 percent gain, the South posting a 4.1 percent gain and the West registering a 14.8 percent decline. The Northeast’s permits, also affected by New York City data, fell 63.4 percent.