Building slump puts question mark over the industry's recovery
WASHINGTON: - New United States housing starts and permits unexpectedly fell to record lows last month, a government report showed yesterday, dampening market expectations of a rise in the sector after its collapse in mid-2007 triggered the global economic crisis.
The Commerce Department said housing starts fell 12.8 per cent to a seasonally adjusted annual rate of 458,000 units, the lowest on records dating back to January 1959, from March's upwardly revised 525,000 units.
A plunge in work on condominiums and apartment buildings last month overwhelmed the second straight gain in starts on single-family properties.
'It obviously calls into question the notion that the housing market is stabilising,' said Mr Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey. Compared to the same period last year, housing starts tumbled 54.2 per cent.
The slump in home building has brought the supply of new properties below the rate that new households are being created, offering prospects of a recovery in the second half of this year, analysts said. Surging unemployment and the continuing credit crunch mean the recovery is likely to be weak, they added.
'This continues to support the story that new construction probably bottoms by early summer,' said economist Adam York at Wachovia Corp in Charlotte, North Carolina.
'We're getting closer but that doesn't mean we're looking for a strong rebound,' he said, adding that 'obviously, financing remains difficult for builders and buyers alike'.
Home Depot Inc and Lowe's Cos Inc this week both posted first-quarter earnings that exceeded analysts' estimates, underscoring signs of a turn in the industry. Confidence among US home builders this month rose to the highest level since last September, a National Association of Home Builders/Wells Fargo survey showed on Monday.
In early trading on Wall Street yesterday, Home Depot, the largest US home-improvement retailer, dropped 5.8 per cent after the release of the housing data. The Dow Jones Industrial Average was down 34.49 points, or 0.41 per cent, about 30 minutes into trading as the unexpected drop in housing starts spurred concern that the real-estate slump will continue to weigh on the economy.
US equity futures had rallied prior to the release of the housing data after people familiar with the matter said Goldman Sachs Group Inc, JPMorgan Chase & Co and Morgan Stanley applied to refund a combined US$45 billion (S$65.7 billion) in government bailout funds.
The three New York-based banks need approval from the Federal Reserve, their primary supervisor, to return the money, according to the sources, who requested anonymity because the application process is not public.
'The three banks have been estimated to be relatively healthy and the news helps sentiment,' said Mr Gregor Mast, an equity strategist at Clariden Leu in Zurich, which oversees about US$88 billion.
New building permits, which give a sense of future home construction, dropped 3.3 per cent to 494,000 units, the lowest since records started in January 1960, from 511,000 units in March.
That was well below analysts' forecasts of 530,000 units.
Compared to the same period a year ago, building permits plunged 50.2 per cent. Building completions rose 4.9 per cent to 874,000 units, yesterday's data showed.
Source: Straits Times, 20 May 2009