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U.S. Home Building Gains, New Permits Fall

New York Daily News via YellowBrix

May 18, 2010

NEW YORK – Home building rose in April, government figures showed on Tuesday, as activity was possibly spurred by an $8,000 government tax credit for new buyers. But the data suggested that builders might also be slowing down their future construction plans.

The Commerce Department said work started on 672,000 homes in April, up 5.8 percent from March. It was the highest number of housing starts since October 2008 and slightly ahead of analysts’ expectations. It also showed a marked improvement compared with April 2009, when housing starts were 477,000.

Building of single family homes also went up, rising 10.2 percent in April from March, the department said.

The end of the tax credit for first-time homebuyers, which had been extended from November through April for sales of houses that close by the end of June, might have had an effect on the numbers, economists said.

“There is little doubt the housing numbers have been boosted by the second expiration of the first-time home buyers credit,” said Dan Greenhaus, the chief economic strategist for Miller Tabak & Company, in a research note.

The increase in building starts appears to show that builders were setting up for a busy spring, but a decline in the number of building permits issued indicates that some did not follow through, said Steven Ricchiuto, chief economist, Mizuho Securities USA.

Construction plans fell to their lowest levels so far this year, possibly from overbuilding. Permits for multifamily homes declined 11.5 percent in April to 606,000 units, from a revised rate of 685,000 units in March, the figures showed.

Permits for single family homes fell by 10.7 percent, to 484,000, from 542,000 in March. This is a significant number because it is not affected by seasonality and it gives an indication of future plans. Most of the permits were issued for construction in the South. Single family permits were down in all four regions of the country.

“The builders overestimated,” said Patrick Newport, an economist at IHS Global Insight. “They thought they would sell more because of the tax credit.”

Mr. Newport said that multifamily housing construction market, which is part of the commercial real estate market, was being hit hard by high vacancy rates, low rental rates and difficulties getting financing.

“Over all I think it was a disappointing report,” said Mr. Newport. “I was expecting stronger numbers. I thought that they were also being driven by other forces such as job growth.”

The numbers are an important indicator of economic growth, because of the associated purchases of materials and hiring of labor.

Although the report suggests a recovery compared to last year, “homebuilders are not seeing a dramatic recovery in demand, but rather have seen only very modest progress from record low levels,” said Joshua Shapiro chief United States economist for MFR, Inc.

A separate report from the Department of Labor showed that producer prices fell by 0.1 percent in April as food and energy costs declined. Food prices fell by 0.2 percent, the first decline in about a year, and energy prices were down 0.8 percent.

The core producer price, which excludes food and energy, increased by 0.2 percent in April compared to March. “It is still pretty tame,” said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.

Compared with a year earlier, prices were up 5.5 percent, and excluding food and energy, the rate was 1 percent higher.

“The message we are getting is inflation is a little further back in the pipeline,” said Mr. Hoffman. “There is pretty much an absence of any inflationary pressures.”

He said he expected the index to drop further this month as oil prices come down.

The data was not expected to have an impact on the government outlook for relatively low levels of inflation for the near future. The Federal Reserve has kept interest rates low to stimulate growth as the economy struggles to recover amid unemployment of nearly 10 percent.

Mr. Greenhaus said inflationary pressures were “quite benign.”

“That is not to say nothing is going up in price,” he wrote in a research note. “Just that inflation, as measured by the government, is nowhere to be seen.”


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