Housing sprouts up in Midwest - Overall, nation sees decline in building
Housing sprouts up in Midwest - Overall, nation sees decline in building
By William Sluis
Copyright © 2007, Chicago Tribune
Published June 20, 2007
Mortgage rates may be rising and defaults on subprime loans may be mushrooming, but don't tell that to Midwestern home builders.
They ramped up construction in the nation's heartland by 16 percent last month, along with a similar jump in the Northeast, according to a government report released Tuesday.
Some of the improvement was weather related, but the figure still lifted some of the gloom for housing economists, who have been focused on the subprime mortgage meltdown.
"There are tentative signs of a rebound, at least in some parts of the country, although this report is a mixed bag," said economist Adolfo Laurenti of LaSalle Bank.
Signs of stabilization have been slow to appear, "but the ingredients for a revival appear to be in place for this year's third quarter," he said.
Overall, housing starts fell 2.1 percent in May, to an annual rate of 1.474 million units, compared to a revised April estimate of 1.506 million. Permits for new construction rose 3 percent, to a rate of 1.50 million. Some of the improvement in permits came from multifamily units, the Commerce Department said. Aside from the Midwest and Northeast, home construction was weaker.
Laurenti said "the brunt of the housing adjustment is taking place in the West," where starts were off by 20 percent in May.
The markets in Las Vegas and parts of California have been hit severely by the industry slowdown.
Even with the halting signs of improvement, construction levels remain 24 percent below those of a year ago.
"The numbers have been all over the place, but we remain lower year-over-year. Builders are growing resigned to the idea that we will be in a trough for a while," said Schaumburg-based housing consultant Tracy Cross.
The signs of improvement last month might have been skewed somewhat by a strengthening rental market, which is boosting construction of multifamily housing in some areas, he said.
To boost business some Chicago-area home builders have been offering a temporary discount on mortgage rates or help with selling an existing home when buyers sign for a new one. One builder has offered to buy an existing home if, after several months, there seems to be no way to sell it.
Still other builders, struggling to reduce high levels of unsold homes, are reducing prices and offering a variety of sales incentives, such as free kitchen upgrades and reduced prices for finished basements.
Some economists remain pessimistic about the outlook.
"We continue to see a deterioration in demand for single-family homes, and so it looks like there's more downside to go for the housing market," said Tim McGee, chief economist at U.S. Trust Corp. in New York.
Deep fissures in the subprime mortgage market have sent tremors through Wall Street, as investment funds that bought a stake in those loans are starting to quake.
"The outlook for mortgage-backed securities that contain the riskiest subprime loans made last year has deteriorated in the last month, and builder sentiment in June fell to its lowest level since February 1991," said Patrick Newport of Global Insight in Lexington, Mass.
While some analysts say they believe a turnaround could appear in late summer, Newport said, "The latest developments may push back the recovery a few more months."
Investment analysts said tighter credit from the mortgage fiasco could negatively affect home buyers with weak, or subprime, credit while helping to prolong the troubles in the housing industry.
It also could force banks, hedge funds and pension funds to acknowledge substantial losses, restricting credit down the road.
Analysts said the housing slowdown cut 0.9 percentage point from growth in the first quarter of this year, after subtracting 1.2 percentage points in the second half of 2006.
Expansion in the first quarter slowed to a 0.6 percent annual rate, the weakest in four years. But many economists believe it is recovering, and is currently closer to 2.5 percent.
Thirty-year mortgage rates rose to an average 6.74 percent at the end of last week, from 6.16 percent at the end of April, according to mortgage giant Freddie Mac.
The number of U.S. homeowners who face possible eviction because of late mortgage payments rose to an all-time high in the first quarter, led by subprime borrowers, the Mortgage Bankers Association said earlier this month.
----------
wsluis@tribune.com
By William Sluis
Copyright © 2007, Chicago Tribune
Published June 20, 2007
Mortgage rates may be rising and defaults on subprime loans may be mushrooming, but don't tell that to Midwestern home builders.
They ramped up construction in the nation's heartland by 16 percent last month, along with a similar jump in the Northeast, according to a government report released Tuesday.
Some of the improvement was weather related, but the figure still lifted some of the gloom for housing economists, who have been focused on the subprime mortgage meltdown.
"There are tentative signs of a rebound, at least in some parts of the country, although this report is a mixed bag," said economist Adolfo Laurenti of LaSalle Bank.
Signs of stabilization have been slow to appear, "but the ingredients for a revival appear to be in place for this year's third quarter," he said.
Overall, housing starts fell 2.1 percent in May, to an annual rate of 1.474 million units, compared to a revised April estimate of 1.506 million. Permits for new construction rose 3 percent, to a rate of 1.50 million. Some of the improvement in permits came from multifamily units, the Commerce Department said. Aside from the Midwest and Northeast, home construction was weaker.
Laurenti said "the brunt of the housing adjustment is taking place in the West," where starts were off by 20 percent in May.
The markets in Las Vegas and parts of California have been hit severely by the industry slowdown.
Even with the halting signs of improvement, construction levels remain 24 percent below those of a year ago.
"The numbers have been all over the place, but we remain lower year-over-year. Builders are growing resigned to the idea that we will be in a trough for a while," said Schaumburg-based housing consultant Tracy Cross.
The signs of improvement last month might have been skewed somewhat by a strengthening rental market, which is boosting construction of multifamily housing in some areas, he said.
To boost business some Chicago-area home builders have been offering a temporary discount on mortgage rates or help with selling an existing home when buyers sign for a new one. One builder has offered to buy an existing home if, after several months, there seems to be no way to sell it.
Still other builders, struggling to reduce high levels of unsold homes, are reducing prices and offering a variety of sales incentives, such as free kitchen upgrades and reduced prices for finished basements.
Some economists remain pessimistic about the outlook.
"We continue to see a deterioration in demand for single-family homes, and so it looks like there's more downside to go for the housing market," said Tim McGee, chief economist at U.S. Trust Corp. in New York.
Deep fissures in the subprime mortgage market have sent tremors through Wall Street, as investment funds that bought a stake in those loans are starting to quake.
"The outlook for mortgage-backed securities that contain the riskiest subprime loans made last year has deteriorated in the last month, and builder sentiment in June fell to its lowest level since February 1991," said Patrick Newport of Global Insight in Lexington, Mass.
While some analysts say they believe a turnaround could appear in late summer, Newport said, "The latest developments may push back the recovery a few more months."
Investment analysts said tighter credit from the mortgage fiasco could negatively affect home buyers with weak, or subprime, credit while helping to prolong the troubles in the housing industry.
It also could force banks, hedge funds and pension funds to acknowledge substantial losses, restricting credit down the road.
Analysts said the housing slowdown cut 0.9 percentage point from growth in the first quarter of this year, after subtracting 1.2 percentage points in the second half of 2006.
Expansion in the first quarter slowed to a 0.6 percent annual rate, the weakest in four years. But many economists believe it is recovering, and is currently closer to 2.5 percent.
Thirty-year mortgage rates rose to an average 6.74 percent at the end of last week, from 6.16 percent at the end of April, according to mortgage giant Freddie Mac.
The number of U.S. homeowners who face possible eviction because of late mortgage payments rose to an all-time high in the first quarter, led by subprime borrowers, the Mortgage Bankers Association said earlier this month.
----------
wsluis@tribune.com
posted by Carlos T Mock @ 8:29 AM
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