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A Setback on the Housing Front - June 16, 2010
Food for thought was pumped along the lines of the leading wire services this morning, namely that the housing recovery has hit a wall--at least for now. That is because housing starts, which had been rising for the most part this year, suffered a material setback in May, with new construction, expected to have fallen by about 5% last month, having actually tumbled by 10%, to 593,000 units on an annualized basis. By comparison, the January through April housing start totals had been, respectively, 612,000, 605,000, 634,000, and 659,000. Note that all figures are on an annual basis. Starts had generally ranged in the 500,000 to 600,000 range in 2009. Meanwhile, in the single-family construction category, starts plunged 17.2% to 468,000.
Home construction fell sharply last month, as noted, thereby setting this sector back on its heels again, as builders remained cautious about housing sales prospects in the absence of government support programs. Specifically, May was the first month without the help of the now-expired first-time homebuyer tax credit. That falloff confirmed fears that an on-again, off-again comeback could possibly falter in the absence of such government assistance.
Further underscoring the construction setback was additional bad news on the building permits front, where the number of planned starts fell 5.99% to a seasonally adjusted 574,000 units. Single-family authorizations were at a rate of 438,000 in May, down 9.9% from April's level of 486,000.
Moreover, housing completions fell 7.4% to a seasonally adjusted annual rate of 687,000 units. Completions were 742,000 in April of this year and 812,000 a year ago. Of course, all of these figures are down more than 50%, and in some cases 60%-70% from the ballyhoo days of 2005 and 2006, when housing was in its so-called salad days, and real estate was an investment of choice. Now, potential buyers, scared away by poor employment prospects, the difficulty in getting financing, and harrowing stories of foreclosures and bank's reluctance, in many cases, to modify troubled loans, are staying away from this battered sector in droves.
When will the housing market turn around? We remain cautious on that score, sensing that May's decline suggests that it may be a year or two before the upturn is unencumbered by further interim setbacks. It could well be longer than that before the market really surges ahead. Too much pain has been inflicted on too many buyers, builders, and lenders for a new boom to get under way anytime soon. A partial recovery is the best that would seem ahead over the next 12 to 24 months.
How did Wall Street react to this news? It largely reacted with a yawn, mostly because a decline was expected and also because just before the market opened a little lower this morning, the government had reported slightly better-than-expected news on the industrial production and factory usage fronts.