A Frigid April for Housing Starts

In a fresh reminder of the fragility of the U.S. economy, housing starts fall 12.8% to a record-low annual pace of 458,000

By BW Staff

Looks like the "green shoots" for the U.S. housing market are taking their sweet time springing through the soil. One day after a surprising jump in the National Association of Home Builders' sentiment survey in April, Wall Street was hoping that the May 19 release of the U.S. housing starts report for April would show a modest uptick, with economists forecasting a rise to a 523,000-unit annual pace from an unrevised 510,000 in March.

But the actual release provided a unpleasant surprise, and a fresh reminder of the fragility of the economy: Starts fell 12.8% to a record-low pace of 458,000 in April from a revised 525,000 in March.

Starts are down more than 54% from a year earlier as the pace of decline accelerated, and are 79.8% below the 2.27 million peak in January 2006.

The news prompted U.S. equity futures, which had been higher in early trading May 19, to pull back, indicating a lower open for stocks.

Looking elsewhere in the April report, building permits declined 3.3% to 494,000, also a new record-low pace. Single-family starts rose 2.8%, while multifamily starts dropped 46.1%.

Starts Jump 42% in the West

The geographic mix for starts showed a 42% bounce in the West following surprisingly weak figures in February and March, while there were declines of 21% to 31% across the other three regions.

"Despite the encouraging increase in single-family starts, the big overall drop was somewhat disappointing, given signs elsewhere of stabilization in the housing sector," says Standard & Poor's Senior Economist Beth Ann Bovino.

Yet, the low starts level could be seen as good news for the real estate market, notes Action Economics, given that it limits new supply and will presumably accelerate the unwinding of existing inventories.

"Overall, the rough ride continues for housing, though we continue to assume that most of the housing measures are in the process of bottoming," wrote Action Economics analysts in a Web site posting May 19.

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