Housing Starts Post Surprise Rise

by May 17, 2008 • 0 comments

As reported by the Wall Street Journal:

May 16, 2008 9:51 a.m.

WASHINGTON — Home construction turned up unexpectedly in April and showed surprising vigor, making the biggest increase in two years. However, the increase was driven by a surge in multi-family housing, while single-family starts dropped.

Housing starts increased 8.2% to a seasonally adjusted 1.032 million annual rate, driven higher by a surge in apartment building construction, the Commerce Department said Friday. Starts plunged 13.8% in March to 954,000, the data showed; Commerce initially estimated March starts down 11.9% to 947,000.

Economists surveyed by Dow Jones Newswires expected April starts to drop by 1.4% to a 934,000-unit annual rate. The 8.2% increase was the largest monthly climb since a 14.0% jump in January 2006.

But year over year, housing starts were 30.6% below the level of construction in April 2007.

“The headline increase in starts means nothing; it is all due to a rebound in the hugely volatile, but essentially trendless, multi-family sector,” said Ian Shepherdson of High Frequency Economics.

April single-family housing starts decreased 1.7% to 692,000. Construction of housing with two or more units soared 36.0% to 340,000; within that category, groundbreakings of homes with five or more units — or multi-family — were 40.5% higher.

Builders have been reluctant to build because demand for new homes has plunged and the supply of unsold property remained high. The latest data show new-home sales, for March, were down 36.6% from a year earlier. On Thursday, the National Association of Home Builders reported its index for sales of new, single-family homes slipped to 19 in May from 20. The gauge is based on a survey of builders asked about prospects for sales.

“The magnitude of the housing bubble was unprecedented, and the corrective process promises to be a long and painful one,” MFR Inc. Joshua Shapiro said of the NAHB data. “Hence, it is hardly surprising that builder sentiment is still languishing very near its all-time low.”

Earlier this week, luxury-home builder Toll Brothers Inc. released preliminary results of its fiscal second quarter and reported a 30% drop in home-building revenue. Its chief, Robert I. Toll, said current customer traffic is “the worst we’ve ever seen” and characterized would-be buyers as “scared.”

Lehman Brothers analyst Michelle Meyer on Thursday said, “We think home sales won’t bottom until the end of the third quarter, leaving builders gloomy and cutting construction through the end of the year.”

Yet Friday’s data showed building permits rose in April by 4.9% to a 978,000 annual rate in April. Analysts expected a drop of 1.8% to 910,000. March permits decreased by 5.0% to 932,000. Permits are a precursor to actual building.

Regionally, housing starts increased 24.4% in the Midwest, 3.6% in the South, and 18.5% in the West. Starts in the Northeast fell 12.7%.

Nationwide, an estimated 92,400 houses were actually started in April, based on figures not seasonally adjusted. An estimated 89,000 building permits were issued last month, also based on unadjusted figures.

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