Housing: Still searching for a bottom

Builders signal concerns about market weakness with drop in permits even as housing starts show unexpected gain.

By Chris Isidore, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- The battered housing market got another vote of no-confidence from builders last month as applications for new projects tumbled to the lowest since 1997, even as housing starts themselves edged higher.

The numbers confirm other recent reports from home builders and real estate groups of a housing market that is still searching for a bottom and that is likely to get weaker before it picks up.

Permits for new homes fell to a nearly 10-year low in April.
Permits for new homes fell to a nearly 10-year low in April.
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Housing starts rose to an annual rate of 1.53 million in April, according to the Census Bureau report, from the revised 1.49 million pace in March. Economists surveyed by Briefing.com had forecast a slip to a 1.48 million pace in April.

But building permits, which are often seen as a measure of builder's confidence in the market, sank to an annual rate of 1.43 million in April from a revised 1.57 million in March. It was the lowest reading since June 1997. Economists had forecast a dip to 1.52 million.

Housing starts can be influenced by weather in different parts of the country. And while April had heavy rains in some regions, mainly the Northeast, that apparently depressed economists' forecasts more than actual building. The seasonally adjusted reading for starts in the Northeast jumped 31 percent from March.

Permits are generally less influenced by weather than starts, and more by how builders view the market. Permits, which require far less investment than a housing start, are usually higher than starts, especially when the market is growing. April marked the biggest gap of starts over permits since November 2003, just as the home building boom of 2004 and 2005 was getting started.

And while builders actually broke ground on more projects, the reading on housing starts was still relatively weak, down 16.1 percent from April 2006 and the eighth-weakest since the start of 1998.

Much of the gain in starts came from multi-family homes. Single-family starts rose only 1.6 percent nationwide, while buildings with five or more housing units saw a 6.4 percent increase.

The report comes a day after the National Association of Home Builders said it now now expects a recovery, and a sluggish one at that, won't start until 2008. The group said the meltdown in the subprime mortgage market has forced lenders to tighten credit, limiting the supply of buyers who can purchase homes.

The downturn in new home sales and home building has hammered results at the nation's largest builders, which are reporting losses, lowered earnings guidance, coupled with rising cancellation rates from buyers and charges for walking away from options they have on some land.

Pulte Homes (Charts, Fortune 500), the No. 4 U.S. homebuilder, posted a loss late last month. No. 2 homebuilder D.R. Horton (Charts, Fortune 500) reported a 37 percent drop in the number of new homes sold in the latest quarter, citing weakness in prices and saying the typical start to the spring home buying season hasn't begun.

No. 3 Centex (Charts, Fortune 500), New Jersey-based Hovnanian Enterprises (Charts, Fortune 500) and Atlanta-based Beazer Homes (Charts, Fortune 500) all also reported losses in the most recent quarter.

No. 5 builder KB Home (Charts, Fortune 500) returned to an operating profit in its most recent quarter after an earlier loss, but its CEO warned in April that he expects the housing slump to get worse.  Top of page