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Construction Down, Prices Up


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June 01, 2006

Construction Down, Prices Up

Peter Coy

So this is how the housing market cools. Demand softens. Builders cut back. But prices keep going up for awhile, almost like a car gliding to a stop long after you take your foot off the gas pedal.

Today the Census Bureau announced a 1.1% drop in private residential construction in April, the biggest decline since January 2004. Economist Ian Shepherdson of High-Frequency Economics notes that if you take out spending on home improvements and look at just new building, the drop was 1.3%, the sharpest since July 2000. Says Shepherdson: "Builders appear finally to be starting to try to reduce their rapidly-expanding inventory. This is a direct hit to GDP growth and it will only get bigger."

Contrast that with the price report out today from Office of Federal Housing Enterprise Oversight. It says that prices in the first quarter rose a little over 2%, for an annual rate of increase of over 8%. Sure, that's a slowdown from the double-digit rates of recent years, but it's still a big gain. Mike Englund of Action Economics writes that "downside surprises from sales indicators are occurring along upside surprises in price of homes actually sold."

Will prices flatten out and fall as the softness in housing demand becomes more and more apparent?

11:39 AM

Economy

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In Chicago, the developers & builders keep putting up new condos and converting rentals to condos. I don't see where the demand is coming from that would cause them to keep building like there's no tomorrow.

Posted by: Sally at June 4, 2006 08:47 PM


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