Homebuilders Are Missing Out on the Economic Recovery

By DEREK KRAVITZ, AP Real Estate Writer

WASHINGTON -- For homebuilders, it hardly feels like an economic recovery.

Nearly two years after the recession ended, the pace of construction is inching along at less than half the level considered healthy. Single-family home building, the bulk of the market, has dropped 11% in that time.

Builders are struggling to compete with waves of foreclosures that have forced down prices for previously occupied homes. The weakness is weighing on the economy: Though new homes represent a small portion of overall sales, they have an outsized effect on jobs.

The Commerce Department said Tuesday that new-home construction plummeted in April to a seasonally adjusted rate of 523,000 homes per year. A major drop in volatile apartment building pulled down the monthly figures. And strong tornadoes and flooding also disrupted construction projects throughout the South.

Still, through the first four months of this year, the pace of new-home construction is barely ahead of 2009's -- the worst year on records dating back a half-century.

"There are very few signs of recovery in residential construction," said Celia Chen, senior director at Moody's Analytics. "Absent evidence of stronger demand for housing, homebuilders will remain reticent to put up new homes."

The disappointing construction data contributed to a sell-off on Wall Street. The Dow Jones industrial average fell more than 110 points in mid-day trading.

Stocks also fell after Hewlett Packard lowered its earnings outlook for the rest of the year, and the Federal Reserve said temporary parts shortages out of Japan led to the first decline in factory output in 10 months.
The April drop in new-home construction was largely because apartment and condominium building plunged more than 28%. Single-family home construction, which makes up roughly 80% of the market, fell about 5%.

Building permits, a gauge of future construction, fell 4%.

"The underlying trends, as far as we can tell, are about flat, at a very low level," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

High unemployment and tighter lending standards have greatly reduced the number of potential buyers who could qualify for a mortgage. And those who are eligible have more incentive to buy a previously occupied home.

The median price of a new home was about 34% higher in March than the median price for a re-sale. That's more than twice the markup in healthy housing markets.

In some cities, prices are half of what they were before the housing market collapsed in 2006 and 2007. Many potential buyers who could qualify for loans are worried that prices will fall further. Others are hesitant to put their own homes on the market when prices are dropping.

The housing market has traditionally powered economic recoveries. Each new home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

In previous recessions, housing accounted for 15 to 20% of overall economic growth. In the first post-recession year, between 2009 and 2010, housing contributed just 4% to the economy.

Harsh weather has hampered construction this year. Violent tornados and flooding along the Mississippi River were major factors in a 23% drop in building throughout the South, analysts said. Reconstruction efforts might lead to a "bounce back in May," according to Paul Dales, senior U.S. economist at Capital Economics.

Home Depot and Lowe's Cos, the nation's biggest home improvement retailers, both said bad weather led to lower revenue during the February-April quarter. The worsening housing market and higher gas prices also cut into their sales.

Home construction activity was uneven across the rest of the country. It fell nearly 5% in the Northeast but rose almost 4% in the West and nearly 16% in the Midwest.

On Monday, the builders' trade group said its survey of homebuilder sentiment was unchanged at 16. That's the same level it has been for six of the past seven months. Any reading below 50 indicates negative sentiment about the market. The index hasn't been above that level since April 2006.

And when asked about where they see sales of single-family home heading over the next six months, the builders surveyed offered their most pessimistic outlook since September.

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finishcarp2002

gee Mike i guess we need to extend unemployment benefits to all workers in the home building industry or any related industries for what 2 years while they wait for new permits to be issued?

May 20 2011 at 8:10 PM Report abuse rate up rate down Reply
1 reply to finishcarp2002's comment
finishcarp2002

not to wish bad circumstances on people but what the home builders need are more natural disasters to fuel the rebuilding process

May 19 2011 at 11:30 PM Report abuse rate up rate down Reply
1 reply to finishcarp2002's comment
tdbug58

Recovery?? The only recovery is AOL and HUFF who gets Soros funds everyday!!! What a joke...

May 19 2011 at 10:15 AM Report abuse +2 rate up rate down Reply
1 reply to tdbug58's comment
carleronn

Amen...leading indicators today fell .3% vs expected increase of .4%. Philly Fed Index was expected to rise to 28 from last month's 18, the actual number, 3, which is barely growing! Housing numbers today were also a disaster. If a Bush was president people would be crying "double-dip" but since it's Obama it's a "recovery"...lol

May 19 2011 at 11:05 AM Report abuse +2 rate up rate down Reply
kingman99

What recovery??? Am l missing something here? The only recovery is in the big business sector period. I know nobody who feels this way.

Get a grip on it!!

Or maybe it's why O'bama is going to give billions to the arabs!!!!!!!!!!

Get this guy out of office quick

May 19 2011 at 9:13 AM Report abuse +2 rate up rate down Reply
Pete Saeger

Uhhh, recovery. What recovery?? Apparently you listen to too much political drivel and avoid the facts, such as increasing unemployment (real unemployment in double digits), increasing foreclosures, falling home prices with increasing inventory, rising "real" inflation, that is food and gas which we all use etc.

May 19 2011 at 8:19 AM Report abuse +1 rate up rate down Reply
metepec

THE BANKS HAVE PURPOSLY SHUT OUT CONSTRUCTION LOANS... YA KNOW US SMALL GUYS... A FEW GREAT ENERGY EFFICENT HOMES A YEAR..
ALL OF US BUILDERS NEED TO STRIKE! WANT MORE JOBS.... GIVE US SMALL BUILDERS A CHANCE...
tHE OTHER CHOICE IS NOW WE WILL HAVE ONLY SUBDIVISIONS... NOT CUSTOM HOMES ON GREAT PRIVATE LOTS.. tHE BANKS STILL PLAY WITH THE BIG GUYS OR THEY HAVE THEIR OWN CASH..

AMERICA IS GOING TO GET PISSED ABOUT THEIR LACK OF NEW HOMES AND CHOICES AS THIS CRISIS HAS PUT MOST SMALL GREAT BUILDERS OUT OF WORK..

aMERICA HAVE FUN STARVING IN SUBERBIA

May 18 2011 at 6:24 PM Report abuse rate up rate down Reply
1 reply to metepec's comment
tdbug58

And I suppose you would lend to builders if you were a bank??? I didnt think so!! Give me a break, why should they make a horrible business decision.. ..

May 19 2011 at 10:17 AM Report abuse rate up rate down Reply
zekandzora

Ben Shalom Bernanke, a student of the Great Depression, gave a speech in 2002 at Milton Friedman’s 90th birthday in honor of Friedman’s work on the monetary causes of the Great Depression. Friedman had claimed to trace the “cause” of the Great Depression to the Fed’s contraction of the money supply. Bernanke said in his address:

...."Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna [Schwartz, co-author of A Monetary History of the US.]: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again."

Ben lied, again. They, The Federal Reserve, are doing.. IT.. again, right now.

May 18 2011 at 3:42 PM Report abuse -1 rate up rate down Reply
1 reply to zekandzora's comment
carleronn

Huh? How much easier do you want the Fed to be? The problem is the Executive Branch's focus on regulations, health care and alternative fuel subsidies, more government, more government, etc.

May 19 2011 at 11:13 AM Report abuse +1 rate up rate down Reply
consultingpbh

The recession is over? 50,000 jobs in one day at McDonalds, merger mania has decimated middle and upper management careers and sent the customer service sector to India. We are developing a 2nd world nation within the supposedly 1st world leader U S of A. Our GDP growth is dwarfed by China, India, Malaysia and Indonesia. Our Dollar is worthless and since 2008 Gas has gone from less than $2 to over $4. Food is another no-brain catastrophe, the non-thinking short term goals of ethanol has driven up the cost of all grains and corn for food production due to it's diversion to fuel production due to government $$s poured into less than cost effective alternative energy that without the sbsidies producers would be drowning in red ink. For those that would like to see a snapshot of the future take a look at the May Day Parade in LA, CA 5/1/2011. Follow the link below.
http://www.ringospictures.com/index.php?page=20110501
75th Regiment
Company O
3rd Brigade
82nd Airborne

May 18 2011 at 1:28 PM Report abuse +1 rate up rate down Reply
cpo1514

Derek.... where do you live??? The USA is struggling with this Socialist and his spending. The unemployment is actually in the 18-20% range. The home builders are missing out??/ Hell, the homebuilders are either bankrupt, in receivership, or bank owned. By any chance do you depend on non real estate industry for your check??? thought so... you are really a Huff Post smiley guy beating the drums for the Community Organizers parade of failures!!!!!

May 18 2011 at 1:01 PM Report abuse +2 rate up rate down Reply
1 reply to cpo1514's comment
tj1108

cpo, your post is spot on with the truth that the Huffpost tries desperatly to hide. To add to your info The GDP is being driven by Govt deficit spending. If the Govt cuts the deficit the GDP falls flat or negative and that shows recession. It would also show that nothing our Govt has done in 2/12 years has done anything but put money in crooks hands and set up the next 2 gerations to pay for it.

May 18 2011 at 1:29 PM Report abuse +2 rate up rate down Reply
1 reply to tj1108's comment
bggdg

Actually, if government cuts spending, GDP will skyrocket. The reason is that government spending is a classic "zero sum game". Every dime the government spends is a dime that came from the private sector, and therefore would have been spent or invested anyhow. In other words, a decrease in counter-productive government spending equates to an increase in productive private sector spending and investment.

May 18 2011 at 2:07 PM Report abuse +2 rate up rate down
totyba

"RECESSION ENDING TWO YEARS AGO"??? DAMN- where have I been? Unemployment rate up last month- gas @ $4 bucks a gallon- housing in the toilet- dollar heading south-the fed. creating $$ like crazy- oh, and food prices??!!
Sure is a good thing the recession is over- just think how bad it would be if our country ever had a RECESSION!!!

May 18 2011 at 11:53 AM Report abuse +2 rate up rate down Reply