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Housing starts down in May

Housing starts sank in May to the lowest level in five months, according to a government study released Wednesday. The drop captures builder unease about the housing market now that a lucrative federal tax credit aimed at energizing home buyers has expired.

Housing starts fell 10 percent in May from April to a seasonally adjusted annual rate of 593,000 units, the lowest level since December, the Commerce Department reported. Compared to the same time last year, housing starts are up 7.8 percent.

The groundbreaking for single family homes plunged even more sharply, dropping 17.2 percent month-over-month to a seasonally adjusted rate of 468,000 units, the report said.

Many analysts who track the housing industry anticipated a drop, though not such a dramatic one, and attributed it in part to poor builder confidence about the market’s prospects now that the tax credit targeting some first-time buyers and certain repeat homeowners has expired.

To get the tax credit, prospective buyers had to sign a contract by April 30 and close on the transaction by June 30. This program juiced sales and construction at the start of the spring selling season, but many analysts predict that the tax credit lured some buyers into purchasing homes earlier than expected, thereby eating into sales later this summer as the selling season progresses.

"Now the credit is gone, it's payback time," Nigel Gault, chief U.S. economist at IHS Global Insight, wrote in a note to clients.

Against that backdrop, the National Association of Home Builders reported earlier this week that builder sentiment sagged in June. Even though interest rates are at record lows, builders have found themselves struggling to compete with less pricey existing homes, including aggressively priced foreclosures.

The Commerce Department also reported that housing permits, a gauge of future construction, fell 5.9 percent in May from April to a seasonally adjusted rate of 574,000 units, but rose 4.4 percent compared to a year ago.

Home completions dropped 7.4 percent month-over-month to a seasonally adjusted rate of 687,000 units and 15.4 percent below May 2009.
Dina ElBoghdady

By Dina ElBoghdady  |  June 16, 2010; 10:25 AM ET
Categories:  Data , Housing  
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Comments

How about a moratorium on new construction, until the existing 5 MONTH supply is actually used up? Too many new homes bought as investments and not to live-in is what lead to the damn bubble bursting in the first place. There's a beautiful home almost completely rebuilt just down the street from me in Falls Church off Graham Rd on Hickory Hill Rd. where the "flipper" ran out of money as the housing bubble burst. He wanted a million for it two years ago... now you can get it for 500k probably. You can commute to D.C. in 10 minutes flat, which sure beats buying a new cheaply constructed home in Haymarket or something for the same price. I don't understand why, with so many homes available for sale, any new homes are being built at all. Buy used! It's the greenest home you can buy.

Posted by: destewar | June 16, 2010 11:56 AM | Report abuse

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