Data suggest US housing slump may continue

Data suggest US housing slump may continue
By Daniel Pimlott in New York
Copyright The Financial Times Limited 2007
Published: May 16 2007 14:27 | Last updated: May 16 2007 14:27


Builders broke ground on more homes last month, but permits issued for future homes plunged to their lowest level in a decade, in a sign that the housing slump may not yet be over.

Housing starts reached a seasonally adjusted annual rate of 1.53m in April, rising 2.5 per cent from the previous month, which was revised down, and beating economists’ expectations for this month.

Building permits, seen as an indication of the housing sector’s future prospects, fell 8.9 per cent to 1.43m, missing expectations of 1.52m and down from a revised level of 1.57m in March. This was the greatest monthly drops in building permits in 17 years.

Builders have been cutting construction in an effort to shrink swollen backlogs of homes. The cut backs in turn could lead to cutbacks in housing related employment.

Economists said the housing data suggested that new building of homes was likely to decline following a period of slight recovery in recent months.

“We expect the fall in permits to be reflected in starts in due course,” said Ian Shepherdson, chief US economist at High Frequency Economics. “The rate of decline is slowing but the bottom is not yet in sight.”

Some of the current weakness was down to the effects of the implosion in the market for subprime mortgages.

”The takeaway is that there is still some contraction going on in the housing market,” said Gus Faucher of Moody’s economy.com. “You are certainly seeing fallout from the subprime mortgage market. Some lenders have gone bankrupt, others aren’t making loans. Homebuilders’ inventories are way up. You’ve got problems on both the supply and demand side.”

The data comes after a survey on Tuesday showed that US homebuilder confidence sank to a 15-year low this month as lenders raised the barrier for people to qualify for mortgages and cancellations of orders grew. Mortgage providers have grown increasingly wary of lending to borrowers with weaker credit histories in the wake of rising defaults by people with ‘subprime’ mortgages.

But there are some signs that the weakness in housing may be slowing.

“Its a serious issue and a weight on growth,” said Mr Foucher. “But its going to fade. The slowdown is going to bottom out, affordablity is already rising and homebuilders are cutting back.”

In other data, industrial production increased 0.7 per cent last month after a fall of 0.3 per cent in March, thanks to improved output in the auto industry, high tech goods and in utilities. Economists had expected Output in the manufacturing sector rose 0.5 per cent in April. The rate of capacity utilisation, which measures how close to full capacity industry is running, is at 81.6 per cent, above the average level between 1972 and last year.

Industrial production has been mixed in recent months. March output dropped 0.3 per cent and production has only increased three times in the last eight months.