By: Todd M. Schoenberger
Any hopes of a complete housing recovery seemed to evaporate once the government-incentive homebuyer tax credit expired on April 30th of this year. Now, it seems the biggest blue sky optimist needs to hold his hat on a tepid 2.1 percent building permit number to find any signs of life of a near-death sector that has very little to grow on.
So it seems these days and the most recent data provided by the U.S. government in the form of Housing Starts for the month of June. The consensus on Wall Street was looking for a lower month-over-month number; but the figures shown were a sign the floor was giving out on the miserable industry.
The Commerce Department reported this morning that Housing Starts dropped 5.0 percent to a seasonally adjusted annual rate of 549,000 units, the lowest since October. It was the second straight month of declines in groundbreaking activity and was well below Wall Street expectations for a 580,000 unit rate.
To add to the misery, the housing starts figure for May was revised lower to show a 14.9 percent decline, which was previously reported as a 10.0 percent drop. Compared to June of last year, starts were down 5.8 percent, the biggest decline since November.
“It’s not surprising that housing starts declined given the significant inventory of unsold homes and until that inventory of unsold homes comes down we’re not likely to see improvement in starts,” said Hugh Johnson, chief investment officer at Hugh Johnson advisors in Albany, New York, to the Los Angeles Times.
Johnson is absolutely correct about the pressure on inventory. However, building permits rose 2.1 percent on a month-over-month basis, which leads many to believe that either homebuilders are ignoring their own data or are optimistic the housing sector will improve sooner than later.
“With little demand and lots of excess supply, it is no surprise that US builders broke new ground on fewer new homes in June,” said Paul Dales, U.S. economist at Capital Economics in Toronto, to International Business Times. “The 5.0 percent…fall in housing starts…was the second sharp decline since the expiry of the homebuyer tax credit at the end of April. Starts are now 19 percent below their April peak and back at levels seen before the recession in the wider economy ended in June of last year.”
Dales also noted to International Business Times that home-building activity has only ever been lower in four months in early 2009. With the rise in building permits in June, the first gain in three months, he suggests that housing starts may have now reached a floor.
But it’s no secret that a slowing economy, high unemployment and record foreclosure rates all signal troubling times for the housing sector. Would-be buyers are certain to remain on the sidelines, regardless of the low mortgage rates presented to them. The immediate future is not bright and a turnaround for the industry may be years away.