Home builders started construction on fewer new homes in April and permits for new construction also fell , delivering another blow to the battered housing market that suggests recovery won’t come soon.
Housing starts slid 10.6 percent from March to a seasonally adjusted annual rate of 523,000 units, the Commerce Department said Tuesday. Analysts were expecting an annual rate of 569,000 units. March numbers were revised up to 585,000 from 549,000 units.
The unexpected housing news contributed to a decline in the stock market. The Dow Jones Industrial Average was down 1.1 percent at 1 p.m.
April’s housing starts were down 23.9 percent from a year ago, the largest drop since October 2009. Economists say a reading of about 1 million starts indicates a healthy market. But the glut of distressed homes on the market, mounting foreclosures and difficulty financing building projects has hampered improvement in the housing market.
New building permits, an indication of future construction, fell 4 percent in April to a seasonally adjusted annual rate of 551,000, compared with a revised March rate of 574,000 and down 12.8 percent from a year ago. Most of the decline in housing starts and building permits reflects a drop in the construction of multi-family units, which plunged 24.1 percent in April.
April’s numbers aren’t as bad as they look, said Paul Dales, economist with Capital Economics, noting that March’s figures were revised upwards and the starts were hit by temporary bad weather. But Dales said residential construction will remain at historically depressed levels for the better part of the next four years. “With residential investment currently accounting for just 2.1 percent of GDP, which is the lowest share since the Great Depression, the housing sector is going to contribute very little to economic growth,” he said.
Still, Mark Vitner, economist with Wells Fargo, expects housing starts to rise modestly for the remainder of the year to a 620,000 unit pace.
The tornados that ripped through the South earlier in the month likely weighed on homebuilding activity in April and are likely to show up in the May numbers. New construction in the South plunged 23 percent in April from March to 255,000 units, the lowest level since the Commerce Department began keeping records in 1988. Housing starts in the Midwest picked up 15.7 percent and the West saw a 3.7 percent gain, while the Northeast saw a 4.8 percent decline.
The National Oceanic and Atmospheric Administration (NOAA) said April was “one of the most active, destructive, and deadly tornado months on record for the U.S.” There were 875 preliminary tornado reports in April, and the final tornado count will approach the all-time monthly record of 542 tornadoes after all storm surveys are completed, according to NOAA.
The National Association of Homebuilders (NAHB) Housing Index for May said its index of homebuilders’ outlook was unchanged from April with a reading of 16. The index has remained flat for six out of the past seven months. A reading below 50 suggests builders consider the housing market to be poor. The index hasn't been above that level since April 2006.
“Persistent concerns regarding competition from distressed property sales, lack of production credit, inaccurate appraisals, and proposals to reduce government support of housing have continued to cloud the outlook,” said NAHB Chairman Bob Nielsen, in a statement. “Many builders in this month’s survey cited high gas prices as a further contributor to consumer anxiety and reluctance to go forward with a home purchase.”
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Housing Starts Drop 10% (CNN)
Housing Starts, Permits Fall in April (Reuters)
