Housing starts slow
Starts of new homes, building permits both post sharp drops below expectations in latest sign of real estate slowdown.
NEW YORK (CNNMoney.com) - Housing starts slowed significantly in April, the government reported Friday, as the latest reading of a slowing real estate market came in below with Wall Street expectations.
The Census Bureau reported that housing starts came in at an annual pace of 1.85 million in April, compared with revised March rate of just under 2.0 million. Economists surveyed by Briefing.com had forecast a 1.95 million pace in April.
The housing starts rate was the slowest pace since November 2004, and comes amid a number of signs of a slowdown in the strength of home building and real estate market strength overall.
Monday the National Association of Home Builders' survey of member confidence fell to its lowest level in nearly 12 years, as the index indicated a negative view of the home building market for the first time since the immediate wake of the Sept. 11 terrorist attack. A separate report from the National Association of Realtors showed a drop in first quarter home prices compared to the end of 2005.
Building permits, which is seen as an indicator of builder confidence in the market, came in at a 1.98 million pace, compared to a revised 2.10 million rate the previous month. The forecast was for permits at a 2.04 million rate for April. It was the first time permits have fallen below the 2 million pace since February 2004.
The year started with the warmest January on record resulting in one of the busiest months for housing starts on record. But housing starts have fallen every month since then. Some of the decline could be because of builders getting an early start on projects they had planned. For the first four months of the year starts are essentially flat, down just less than 1 percent.
But beyond the report, the home building market is being affected by rising mortgage rates, which increases the costs of new home purchases, as well as higher raw material costs than a year ago, an increase in cancelled orders for new homes and a jump in the supply of new homes on the market. All combine to put a damper on home construction.
Single family home starts fell 5.6 percent in April compared to March, and nearly 9 percent compared with April of a 2005. The big hit came in starts for condos and buildings with five or more residences. Those starts were down 21 percent compared with March and 25 percent compared to a year earlier.
The areas of the country which have seen the strongest growth showed even sharper declines.
The South, which accounted for just less than half of all housing starts during the building boom of the last two years, saw starts fall about 16 percent for both single-family homes and multiple-family buildings such as condos. The West, which accounted a bit more than a quarter of building during the boom, saw starts fall nearly 10 percent. Meanwhile the Northeast and Midwest saw gains in housing starts.
While some economists worry that the slowdown in building reflects a popping of what they see as a bubble in real estate market strength in recent years, others suggest the slowdown is a positive, that it reflects a gradual cooling of an overheated market that could not be sustained.
"With the orderly cooling-down process we're projecting for home sales and single-family housing starts in 2006," said David Seiders, chief economist for the builders' trade group, in a statement which accompanied its survey results Monday. "We expect new-home sales to be off by 12 percent from the record posted in 2005. Single-family starts, supported by large builder backlogs of unfilled orders and reconstruction in the wake of last year's record-breaking hurricane season, should be down by about 7 percent from the 2005 record."
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