Housing starts, permits at 12-year low
Builders slam the brakes on new projects due to problems in real estate, mortgage markets, fall short of forecasts.
NEW YORK (CNNMoney.com) -- Housing starts and permits for new homes fell to their lowest level in 12 years in August, as the problems in the mortgage and real estate markets caused builders to slam the brakes on new construction.
The government report showed that housing starts fell to an annual pace of 1.33 million in August, down from a 1.38 million rate in July. Economists surveyed by Briefing.com had forecast starts would fall to a pace of 1.35 million in the month.
Permits, which are taken as a sign of builders' confidence in the market, fell to an annual rate of 1.31 million from 1.39 million in July. Economists had also been looking for that number to fall to a 1.34 million rate.
The pace of building for single family homes fell even more sharply in the report, falling 7 percent to an annual rate of only 988,000, a 14-year low. Permits for single-family homes fell 8 percent to 926,000.
"The more volatile multifamily market hid some of the weakness in single-family homes," said Wachovia economist Adam York.
The report confirms other readings that showed severe problems in the real estate and mortgage markets in the month, as lenders pulled back on making new loans due to problems selling loans to investors who were wary because of rising delinquencies and defaults.
The downturn in housing and construction and turmoil in the credit markets were two of the reasons cited Tuesday by the Federal Reserve when it cut its targeted interest rate for the first time in four years. The slump in housing and home building has been a drag on the U.S. economy for more than a year, and there are growing fears that the building slump could help tip the nation into a recession later this year.
In one respect, the report is good news for battered housing sales and home prices. There was a record supply of existing homes for sale on the market, according to the National Association of Realtors, and problems with rising mortgage foreclosures could dump more homes onto the markets. In addition, overbuilding by builders in 2005 and early 2006 left a glut of new homes on the market as well.
"Builder activity is going to have to continue to come down, given that we have a big supply glut," said Mike Larson, a real estate analyst at independent research firm Weiss Research. "Even if the Fed cut stimulates sales a little bit, we need to work down this big supply overhang. Until that happens, the builders are not going to shift the bulldozers and backhoes into overdrive."
The report follows a survey from the National Association of Home Builders released Tuesday that showed builders' confidence in the market at a 16-year low, and their view of the market's prospects six months from now at a record low.
The report also comes the same day that the American Institute of Architects released its own survey that shows problems in the credit markets starting to bleed over into commercial real estate and building, which has remained strong in the face of the downturn in residential building.
That group's index, which measures work done by architecture firms primarily serving the commercial construction markets, showed there is still growth in the sector, but its index fell sharply to 53.9 from 60.0 in July, which had been a near record high. Any reading above 50 indicates growth in that survey.
The group also asked members if they had seen projects being planned or worked on affected by the problems in the credit market. The survey found 22.8 percent had seen those issues put the brakes on at least some projects.
"The question is, is this the tip of the iceberg for commercial construction, or a pause to sort things out?" said Kermit Baker, the chief economist for the AIA. "The early indication is that it's much more likely to be the latter. It makes sense that there were calls to banks to make sure financing was still in line for various projects. But those numbers [of members] reporting that projects have been affected are bigger than I would have guessed."
The downturn in housing has led to losses at the nation's six largest home builders.
Lennar (Charts, Fortune 500), the nation's No. 1 builder, and No. 5 KB Home (Charts, Fortune 500) both reported a loss in the latest quarter. No. 2 home builder D.R. Horton (Charts, Fortune 500) and No. 3 Centex (Charts, Fortune 500) both reported losses far bigger than Wall Street had expected, while No. 6 Pulte Homes (Charts, Fortune 500) and Hovnanian Enterprises (Charts, Fortune 500) have reported losses for the last two quarters, and analysts project losses for at least the next year.