U.S. home construction plunged last month as demand plummeted
Home construction plunged last month to the lowest level since October as the economy remained weak and demand for housing plummeted.
Construction of new homes and apartments in June fell 5 percent from a month earlier to a seasonally adjusted annual rate of 549,000, the Commerce Department said Tuesday. May's figure was revised downward to 578,000.
Driving the June decline was a more than 20 percent drop in the volatile condominium and apartment market. Construction of single-family homes, the biggest part of the market, was down slightly. It dropped 0.7 percent.
One bright area of the report was an increase in building permit applications, which is a sign of future activity. They rose 2.1 percent from a month earlier to an annual rate of 586,000.
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Still, the slumping job market and competition from foreclosed properties have forced builders to limit construction, especially after tax credits that spurred sales expired at the end of April.
"Despite record low mortgage rates, housing is at risk of a double dip unless job growth strengthens soon," said Sal Guatieri, senior economist at BMO Capital Markets.
Economists had had predicted that construction would fall to a rate of 580,000 and had projected that building permits would sink to a rate of 570,000, according to Thomson Reuters.
In a typical economic recovery, the construction sector provides much of the fuel. But not this time. While developers have cut back on construction and the number of new homes on the market has fallen dramatically, they still must compete against foreclosed homes selling at deep discounts.
Builders have been feeling increasingly pessimistic of late. The National Association of Home Builders said Monday that its monthly reading of builders' sentiment about the housing market sank to 14 - the lowest level since March 2009. Readings below 50 indicate negative sentiment about the market.
Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the builders' trade group. The impact appears in multiple industries, from makers of faucets and kitchen appliances to lumber yards.
The rate of home building is still up about 15 percent from the bottom in April 2009, though it's down 76 percent from the last decade's peak in January 2006.
New home sales in May dropped 33 percent to the slowest pace in the 47 years records have been kept. The drop-off came immediately after the tax incentives to sign a contract on a home ended on April 30.
(Copyright 2010 by The Associated Press. All Rights Reserved.)
