New-Home Construction Plunges in February

home constructionBuilders broke ground last month on the fewest homes in nearly two years and cut their requests for permits to start new projects to a five-decade low. The decline in construction activity is the latest evidence that the housing industry is years away from a recovery.

Home construction plunged 22.5 percent in February from January to a seasonally adjusted 479,000 homes, the Commerce Department said Wednesday. It was the lowest level since April 2009 and the second-lowest on records dating back more than a half-century.

The decline followed a surge in highly volatile apartment construction in January, which pushed the overall construction rate up to more than 600,000 units - the fastest rate in 20 months. Still, the building pace has been far below the 1.2 million units a year that economists consider healthy.

Economists say falling prices, sluggish sales and the weak construction rate all point to a housing market that is years away from a recovery.

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"There are really large structural problems with the housing market," said Dan Greenhaus, chief economic strategist with Miller Tabak + Co. "This is not a run-up in oil prices. This is a multiyear build up in the housing market that is going to take more than several months or several quarters to get through."

Single-family homes, which make up roughly 80 percent of home construction, fell 11.8 percent in February. Apartment and condominium construction dropped 47 percent, reversing much of January's gains.

Building permits, an indicator of future construction, fell 8.1 percent last month to the lowest level on records dating back to 1960. Permit requests for single-family homes saw the biggest decline. Apartments and condos remained flat.

Analysts said year-end building code changes in California, Pennsylvania and New York caused an artificial spike for permit requests in December and housing starts in January. Builders in those states rushed to file new permits before those changes went into effect.

Even with those gains, the housing market has struggled. Millions of foreclosures have forced home prices down and more are expected this year. Tight credit has made mortgage loans tough to come by. And some potential buyers who could qualify for loans are hesitant to enter the market, worried that prices will fall further.

The drop in home construction activity was felt coast to coast. It fell 48.6 percent in the Midwest, 37.5 percent in the Northeast, 28 percent in the West and 6.3 percent in the South.

The volatile housing market is weighing on the overall economic recovery. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

The trade group said Tuesday that its index of industry sentiment for March improved slightly to 17. That was the first gain in five months after four straight readings of 16. Still, any reading below 50 indicates negative sentiment about the housing market's future. The index hasn't been above that level since April 2006.

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Tamara Joy

how about our state january 1st all new homes sprinklers installed at a price of 4000-20000 depending on what you have to do to get proper water supply. thank you pensylvania while the rest of us are seeing reduction in income, the goverment is adding regulations in the name of safty. i wonder how many people have even ever seen a sprinkler go off. other than tv. we wont even get into them buying the most expensive item that has ever been bought $700,000,000 called health care reform. idont know many people out buing rolls royce's in this resesion but our goverment tried. when things were good we could bearly afford there regulations sorry but know we cant.

March 17 2011 at 12:16 PM Report abuse rate up rate down Reply

I misspoke! The value of farmland has multiplied TEN times from the rates the corporations purchased it in the 1980s, just as the value of real estate that the private investment groups are purchasing today will escalate once there is a shortage of housing. Eventually, prices will return to the cost of construction - the economic fundamentals always assert themselves - eventually - after all the little people are squeezed out. . . . .

March 17 2011 at 10:17 AM Report abuse +1 rate up rate down Reply

I WILL go on. In our area (metropolitan Chicago), unemployment in the building trades is 57 percent. Lumber companies, concrete companies, etc. are falling like flies. So much of this is psychological and fear driven. (It is akin to the farm crisis of the 1980s, where the same sort of artificial market activity - a fast downturn in land prices, created a situation where family farms were put out of business by the banks/government, the land purchase mainly by foreign corporations and - now - the land values have tripled.) Smart??? Our population is still growing. At the current levels of housing construction, the country will face a housing shortage in three years. Because of incompetence and graft by politicians for the benefit of banks, the government is fostering the greatest redistribution of wealth in the history of the U.S.

March 17 2011 at 9:47 AM Report abuse +1 rate up rate down Reply

Without a change in government and banking policy, as well as appraisal policy, the downturn will continue and the wealth of the baby boomers, which was primarily in their homes, will be devastated. In the midst of this crisis, last year the government mandated an overly aggressive (complete overkill) insulation code - a national code, the first! It adds nearly $10,000 in cost to the 2,000 square foot model our company builds. The appraisers are creating a great deal of the downturn. In our area, one of three real estate contracts fail because the appraisal comes in low. You have a willing buyer, a willing seller, but the appraiser kills the deal. We had one instance where a buyer and seller agreed at a $500,000 price. The appraisal came in $100,000 lower and the deal fell. Two months later, another buyer came in at the same price, but the next appraiser valued the home at $510,000, so the deal closed. Not all sellers are as well-informed and will cave into these lousy appraisals. Appraisals are ONE PERSON'S OPINION! The market value is what one person agrees to buy for and one person agrees to sell for. . . I could go on. . .

March 17 2011 at 9:39 AM Report abuse +1 rate up rate down Reply
2 replies to Susanne's comment

Susanne, As an Appraiser I think that I can explain what happened to your deal. The lenders are required to order appraisal from an Appraisal Management Company. The AMC places to order with the appraiser who will bid the lowest. So in the Chicago area where I work, you have appraisers from the downstate area that have no experiance in this region. You should ask the lender if their appraiser is local and experianced. Some lenders own their own AMC and are keeping half the appraisal fee. Most of you could not work for half of what you make now and still pay your overhead. When agents and borrowers demand what they are paying for, you will get an experianced appraiser from your market. If you do some research on what the HVCC and the Frank/Dodd bill has done to the appraisal industry, you will understand how it is effecting the entire real estate industry. Congrats on staying in business in hard times.

March 17 2011 at 10:20 AM Report abuse +1 rate up rate down Reply

Thank you for the insight. It's amazing that no one in the media reports on this. . .

March 17 2011 at 12:27 PM Report abuse +1 rate up rate down Reply

The new building code in Pa. is a killer. Every new home needs a sprinkler system installed which adds between $5k to $15k depending on if you have direct water or a well hookup. I'm sure the insurance industry lobbied for this code killer.

March 17 2011 at 2:07 AM Report abuse +1 rate up rate down Reply

Why should we be building new homes, fer chrissake? Isn't that the problem -- supply exceeding demand?

March 16 2011 at 9:31 PM Report abuse +5 rate up rate down Reply
1 reply to sbsosman's comment

Good...sell the ones on the market first....before we start dealing with more failed mortgages

March 16 2011 at 6:57 PM Report abuse +5 rate up rate down Reply

When the raw building materials cost more then you can sell a home for, Who in the heck would spend the money for inpact fees and labor, just so you can sell it for a loss?? I mean realy!!! as long as the banks keep clearing there inventory for 50cents on the dollar, we will all feel the pain, Our friend BHO is giving them there shortage back with your tax dollars , while you sell at there dump it price, only differance is YOU EAT IT !!! and the bank get your tax dollars to cover there loses, Sweet deal right, THANKS ALOT !!!!!

March 16 2011 at 4:12 PM Report abuse +1 rate up rate down Reply
1 reply to mark's comment

silly premise

March 16 2011 at 6:53 PM Report abuse rate up rate down Reply

point out some other top Obama officials cashing out to work for big banks:

Deputy White House Chief of Staff Mona Sutphen, now a lobbyist for UBS.

White House Counsel Greg Craig, who went to Goldman Sachs

Budget Director Peter Orszag, who went to Citigroup

Labor Department aide Oscar Ramirez who represents Bank of America at the Podesta Group

Top Treasury Department aide Damon Munchus, who now lobbies for Citigroup and the International Swaps & Derivatives Association, among others.
This is a far cry from what some of us expected when candidate Obama pledged he was "closing the revolving door."

March 16 2011 at 1:11 PM Report abuse +3 rate up rate down Reply
1 reply to jkennedy806's comment

you are assuming obama has some control over the door. maybe he was, too.
who would want to be part of what is going on? so on to new housing which was the headline. if you think the new housing numbers are bad now, just wait. there is so much distressed property on the market (and not on the market) only a fool would buy a new home or someone with lots of loot/equity. locally, some of the regional builders are offering 50% off upgrades, sweet 3 year financing like 3.50% for 3 years that you would think would entice buyers. it does a few. the smart ones find (let's give it a model name, say the HEATHERSTONE) in another nearby community that is 4 years old. this home had every option, stretch, and upgrade imaginable when built. the builder wants $300k for the new home. they can buy the loaded up heatherstone either down the street or in another community for $225,000 due to all the distressed sales around it. they will have to live with 5%, locked, mortgate. what would you buy?

March 16 2011 at 6:50 PM Report abuse rate up rate down Reply

I say this all the time....does this really surprise anyone, except Washington and the economist's of course. Bewteen the inventory of foreclosures, unsold new houses as well as the normal flow of sales - housing is deep poop for a while. The unemployment situation will stifle growth for years to come.

March 16 2011 at 11:41 AM Report abuse +8 rate up rate down Reply