New home sales make up less than 10% of overall housing sales, but a plunge in housing starts last month suggests the originally-scheduled end of the new home buyers tax credit had an adverse impact on the market in October.
Housing starts fell a steep 10.6% last month to a seasonally adjusted annual rate of 529,000. Building permits, which are used for forecast future starts, fell 4.0% to 552,000. Single-family authorization, which is considered a more important indicator, was down just 0.2% to 451,000.
The declines exceeded forecasts but are likely the result of the expected expiration of the $8,000 tax credit for first time home buyers, which had not yet been extended by Congress.
Rising real estate construction spending aided GDP in 3Q and further gains are a crucial ingredient if the economic recovery is to become self-sustaining.
Elsewhere, yesterday’s release of the Housing Market Index, which was unchanged from October’s downwardly revised reading of 17, also signaled the tentative situation builders were in as they awaited Congressional approval of an extension of the tax credit.
A reading of 50 indicates builders are neither optimistic nor pessimistic about the new home market.
The extension and expansion of the credit, coupled with historically low mortgage rates and improving affordability, are expected to lend support to the housing market going forward. But high unemployment and a still high level of layoffs will probably remain headwinds to a housing recovery.
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