After a federal subsidy for buyers expired, housing starts fell 5% in June to a seasonally adjusted annual rate of 549,000 in June, the lowest level in eight months, the Commerce Department estimated Tuesday. The drop was worse than the 3% decline to 575,000 expected by economists surveyed by MarketWatch. Building permits rose 2.1% on the month, due to a 20% gain in permits for multi-family units. Permits for single-family homes – considered by many to be the most vital number in Tuesday’s release – fell 3.4% to a seasonally adjusted annual rate of 421,000, the lowest level since April 2009.
The retreat following the end of government support shows it will be difficult for the industry that precipitated the recession to sustain a recovery. Mounting foreclosures will swell the supply of houses on the market and pressure prices, while prospective buyers shy away as a lack of jobs shakes confidence in the world’s largest economy. We’re going to see general weakness in the housing market, at least into the fourth quarter. Sales were boosted until April by the tax credit and now we’re seeing a sharp falloff. The Commerce Department’s homebuilding figures are due at 8:30 a.m. in Washington. Estimates ranged from 525,000 to 620,000. Housing’s inability to maintain a rebound is one reason the economic recovery is not gaining speed. Building permits were probably little changed at 575,000 from 574,000 in May, the survey showed, signaling construction is not likely to rebound in coming months.
Credit Ends
The projected drop in housing starts would follow a 10 percent decrease in May from April’s 18-month high. The deadline for signing purchase agreements and becoming eligible to receive a government tax credit worth as much as $8,000 was April 30. Sales of existing homes fell to a 5.1 million annual rate in June from 5.66 million the prior month, economists forecast before a July 22 report from the National Association of Realtors in Washington. Builders have to contend with a growing supply of existing homes that is driving down home values as foreclosures rise. Home seizures jumped 38 percent in the second quarter from a year earlier, RealtyTrac Inc. said last week, putting lenders on pace to claim more than 1 million properties this year.
Homebuilder sentiment fell in July to its lowest level since April 2009, a report yesterday from the National Association of Home Builders/Wells Fargo showed. The group’s confidence index fell to 14 from 16 the prior month, and readings less than 50 mean more respondents said conditions were poor.
Builder Shares
Shares of homebuilders have underperformed the broader stock indexes this year. The Standard & Poor’s Supercomposite Homebuilding Index has fallen 12 percent this year, compared with a 3.9 percent decline for the S&P 500 Index. Other economic data have turned down. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased in July to the lowest level in 11 months, the group reported last week. Earlier in the month, the Labor Department reported private payrolls rose a less-than-forecast 83,000 in June and total jobs fell by 125,000, the first decline this year. The unemployment rate will end the year at 9.5 percent, unchanged from the rate in June.
Lennar Corp.’s home sales were running 20 percent to 25 percent lower last month than a year earlier as the expiration of the tax credit sapped demand, Chief Executive Officer Stuart Miller said June 24. “The new home market and housing in general still face serious headwinds from current economic and legislative conditions,” Miller said on a conference call with investors. “The prospect of additional delinquencies ahead continues to moderate this recovery as shadow inventory continues to be absorbed.”
