Housing starts flounder

Home builders continue to face stiff headwinds, as housing starts unexpectedly declined and forward-looking permits suggested the industry isn’t coming out of its slump.

Housing starts fell 10.6% in April to a seasonally adjusted annual rate of 523,000. Weakness in multi-family construction was weak, but single-family starts also slipped, losing 5.1%.

Building permits, which provide a peek at how the industry is likely to perform in the coming months, also gave up ground.  Permits fell 4.0% to 551,000 annualized units.

Single- family permits, which offer a greater degree of clarity on the new home industry, dipped 1.8% to 385,000.

 

There’s really not a whole lot of good news to come out of today’s report.

Single-family housing starts and building permits remain in a gradual downward trend, which reasserted itself after Congress let the homebuyers tax credit expire last year.

And the uncertainty in the economy, tight lending standards and worries that housing prices will continue to drift lower are also hampering builders.

Mortgage rates have been falling in recent weeks, and Freddie Mac reported last Thursday that the 30-year fixed mortgage rate stands at 4.63% (inclusive of 0.7 points), the lowest reading in five months.

But low cost financing did little to help the market last year when the rate on a 30-year loan approached 4%, and given the uncertainties that remain, it may do little to lend support this time around.

Longer-term, housing formation is expected to pick back up, Bloomberg News noted in a May 1 story.

“Between 750,000 and 1 million new households will be created in 2011, predict UBS Securities LLC’s Maury Harris and IHS Global Insight’s Patrick Newport. That compares with just 357,000 added in the year ended March 2010, the lowest on record, according to the Census Bureau.

“As employment picks up, new households are likely to rise above the past decade’s average of 1.3 million a year, according to Newport.”

If the forecast proves to be accurate, a modest rise in demand may return, helping to absorb the excess inventories on the market and help put a solid foundation under the housing market.