Homebuilding, new home startsThe U.S. housing sector's road to recovery is getting rougher: Housing starts fell a worse-than-expected 5% in June to a seasonally adjusted annual rate of 549,000, the U.S. Commerce Department announced Tuesday. That's the lowest level in eight months.

A Bloomberg survey had forecast housing starts to fall to a 580,000 annual rate in June. In June 2009, starts totaled a 583,000 annual rate. Housing starts hit a cyclical low of a 577,000 rate in April 2009. Equally significant, permits for new single-family homes fell 3.4% to a 421,000 annual rate -- their lowest since April 2009.

Housing starts are now down 5.8% on a year-over-year basis -- after two phases of the homebuyer tax credit program. Starts are also down about 75% from the 2006 peak registered during the housing bubble.

In June, housing starts housing fell in every region. They sank 11.3% in the Northeast, 6.9% in the Midwest, 5.9% in the West and 2.4% in the South.

One bright spot in the June housing starts data was total new-building permits -- considered a leading indicator of residential construction -- which rose 2.1%. But the gain was due to a 20% surge in multifamily building permits, which more than offset the single-family permit decline.

Does Housing Need Another Tax-Credit Boost?

June's starts report will likely intensify concern that the sector isn't generating enough organic demand to fuel a housing sector recovery -- which historically has played an important role in a U.S. economic recovery. Fewer home purchases due to the 2007-2009 recession, combined with a rise in foreclosures, have created a large inventory of unsold new and existing homes. It's little wonder that builders have been reluctant to construct new homes.

In addition, housing starts have declined 19% from April's 679,000-unit annual rate this spring -- a period when homebuilding typically increases as warmer weather arrives. That certainly hasn't been in the case in 2010. Housing starts, which had shown signs of a modest rebound after the homebuyer tax credit was expanded and extended through April 30 (rising 17.8% from December 2009 through April 2010), have since retrenched following the program's expiration.

An overriding question now is whether Congress will renew the tax credit for a second time. The low housing start and high home inventory statistics suggest the sector needs it, but the political mood on Capitol Hill at this juncture doesn't appear to be receptive to the idea.

Stung by investors' concern over Europe's debt crisis, Congress has taken an austerity-first posture -- one that's more likely to seek budget cuts and tax increases to decrease the U.S. budget deficit -- a stance not conducive to renewing a large subsidy such as the homebuyer tax credit.

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thecafecoffee

Further stimulus to the 'housing market' without the cooperation of lending institutions to ease credit and stem the tide of foreclosures will have little if any effect toward economic recovery and stabilization of the housing sector . . . regardless of how low home loan interest rates fall and unemployment remains at or close to its present levels!!!

August 12 2010 at 7:11 PM Report abuse rate up rate down Reply