New home construction sinks 10%

By Julianne Pepitone, staff reporter


NEW YORK (CNNMoney.com) -- The government reported Wednesday that new home construction fell sharply in May -- the first month after a homebuyer tax credit expired.

Housing starts fell 10% from April to a seasonally-adjusted annual rate of 593,000 last month, the Commerce Department said.

Economists were expecting housing starts to fall to only 655,000. On a year-over-year basis, starts rose 7.8% from May 2009.

New construction of single-family homes, the key sector of the housing market, plummeted 17.2% over the month to an annual rate of 468,000.

The annual rate for new construction of multi-family homes -- buildings with 5 or more units -- was 112,000.

April was the last month in which first-time home buyers could qualify for a federal tax credit of up to $8,000. Earlier this year lawmakers extended the deadline through April 30 and added a new credit of up to $6,500 for some existing home owners who move.

Forecasts were too optimistic given the tax credit's expiration, said Ian Shepherdson, economist at High Frequency Economics, in a research note.

"The tax credit pulled housing transactions and construction activity forward into the spring from the summer," Shepherdson said, "so the next few months will see activity remaining at a very low level."

Housing starts will probably drop "a bit further" in June, Shepherdson added, though he expects activity "to begin reviving, gradually, in the fall."

Building permits: That's likely why applications for building permits, a gauge of future construction activity, also fell sharply. Permits fell to a seasonally adjusted annual rate of 574,000 last month, down 5.9% from a revised 610,000 in April.

Economists were expecting a more modest decline to 631,000 permits. Despite this month's sharp drop, permits were up 4.4% from May 2009.

Last week, a Senate amendment was unveiled that proposes extending the tax credit deadline to Sept. 30. To top of page


Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.25%4.27%
15 yr fixed3.23%3.21%
5/1 ARM3.37%3.37%
30 yr refi4.19%4.36%
15 yr refi3.18%3.17%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 16,979.13 59.54 0.35%
Nasdaq 4,526.48 -1.03 -0.02%
S&P 500 1,986.51 4.91 0.25%
Treasuries 2.43 0.01 0.25%
Data as of 8:59am ET
Company Price Change % Change
General Electric Co 26.36 0.31 1.19%
Staples Inc 11.32 -0.30 -2.58%
Microsoft Corp 44.95 -0.38 -0.84%
Cisco Systems Inc 24.71 0.07 0.28%
Lowe's Companies Inc... 52.33 0.81 1.57%
Data as of Aug 20

Sections

Russian officials have shut four McDonald's restaurants in Moscow, including the first to open in the city nearly 25 years ago at the end of the Cold War. More

The world is aging rapidly and that's bad news for the global economy, according to a new report by Moody's Investor Service. More

Small business owners say the economy is still their biggest challenge, which keeps them from expanding and hiring, according to a CNNMoney-Manta survey. More

This month, Delaware became the first state to pass a law giving heirs the right to access the online accounts and assets of someone who has passed away. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.