US new home construction drops to 10-year low in July
Builders in the US started work on the fewest homes in a decade in July as the industry showed no sign of recovering from the 18-month recession.
By Agencies |
WASHINGTON: Builders in the US started work on the fewest homes in a decade in July as the industry showed no sign of recovering from the 18-month recession.
The greater-than-forecast 6.1% decrease to an annual rate of 1.381 million, followed a 1.47 million pace in June, the commerce department said on Thursday in Washington. Building permits also fell to a 10-year low. Stock markets worldwide have tumbled on concern subprime mortgage defaults will bankrupt more lenders and destabilise the financial system. Consumer spending, which accounts for more than two-thirds of the economy, may weaken as falling prices and limits on borrowing prevent owners from tapping home equity.
“The housing market is still in a downward spiral,” Brian Bethune, an economist at Global Insight in Lexington, Massachusetts, said before the report. “Weak demand is being hollowed out further by much tighter lending conditions in the mortgage credit markets.”
Starts were projected to fall to a 1.4 million unit pace, from an originally reported 1.467 million in June, according to the forecast. Estimates ranged from 1.35 million to 1.47 million. Permits, a sign of future construction, decreased 2.8% to a 1.373 million annual pace, the lowest since October 1996. They were also forecast to drop to a 1.4 million rate, according to the survey, with projections ranging from 1.375 million to 1.441 million.
William Poole, president of the St. Louis Federal Reserve Bank, said in an interview on Wednesday that the subprime mortgage rout doesn’t threaten economic growth, and only a ‘calamity’ would justify an interest-rate cut now. Poole, who confers regularly with regional business contacts, said in an interview on Wednesday that “no one has called up and said the sky is falling.” The best course is for officials to assess economic figures, including the August jobs report, when they next convene on September 18, he added.
The greater-than-forecast 6.1% decrease to an annual rate of 1.381 million, followed a 1.47 million pace in June, the commerce department said on Thursday in Washington. Building permits also fell to a 10-year low. Stock markets worldwide have tumbled on concern subprime mortgage defaults will bankrupt more lenders and destabilise the financial system. Consumer spending, which accounts for more than two-thirds of the economy, may weaken as falling prices and limits on borrowing prevent owners from tapping home equity.
“The housing market is still in a downward spiral,” Brian Bethune, an economist at Global Insight in Lexington, Massachusetts, said before the report. “Weak demand is being hollowed out further by much tighter lending conditions in the mortgage credit markets.”
Starts were projected to fall to a 1.4 million unit pace, from an originally reported 1.467 million in June, according to the forecast. Estimates ranged from 1.35 million to 1.47 million. Permits, a sign of future construction, decreased 2.8% to a 1.373 million annual pace, the lowest since October 1996. They were also forecast to drop to a 1.4 million rate, according to the survey, with projections ranging from 1.375 million to 1.441 million.
William Poole, president of the St. Louis Federal Reserve Bank, said in an interview on Wednesday that the subprime mortgage rout doesn’t threaten economic growth, and only a ‘calamity’ would justify an interest-rate cut now. Poole, who confers regularly with regional business contacts, said in an interview on Wednesday that “no one has called up and said the sky is falling.” The best course is for officials to assess economic figures, including the August jobs report, when they next convene on September 18, he added.
Construction of single-family homes slumped 7.3% in July to a 1.07 million rate, Thursday’s report showed. Work on multifamily homes, such as townhouses and apartment buildings, decreased 1.6% to an annual rate of 311,000. The drop in starts was led by an 11% decline in the South. Construction fell 3.7% in the West and 1.3% in the Northeast. They rose 2.6% in the Midwest.
The number of homes under construction decreased 1.6% to a 1.143 million pace. Completions of dwellings fell 0.1% to an annual rate of 1.512 million. The number of housing units authorised, but not yet started, decreased 6% to a 194,400 annual pace, Thursday’s data showed.
The slump in construction, which has slowed growth without stopping the expansion, shows no sign of abating. Confidence among homebuilders fell to a 16-year low this month as cancellations and lending restrictions took a toll, according to a report on Thursday from the National Association of Home Builders/Wells Fargo.
Buyers are delaying purchases in hopes of further price declines, and tougher restrictions have shut some borrowers out of the mortgage market, economists said. Rising foreclosures will probably throw more properties back on the market. Subprime mortgage defaults are already the highest in a decade, according to figures from Friedman Billings Ramsey Group, an Arlington, Virginia-based real estate investment trust.
Ongoing declines in housing, new lending restrictions and volatile financial markets have raised concerns about growth ‘somewhat’, Fed policy makers said in a statement after their August 7 meeting. They held the benchmark interest rate unchanged at 5.25% and reiterated that inflation is the biggest risk for the economy.
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The Standard & Poor’s 500 stock market index is down almost 10% since reaching a record on July 19 on investor concern the subprime crisis would lead to a widening credit crunch. Toll Brothers, the largest US luxury-home builder, said August 8 that third-quarter revenue dropped 21% as the new credit restrictions reduced the pool of potential buyers.Download
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