By Mark Huffman
ConsumerAffairs.com
June 16, 2010
What a difference a tax credit makes.
The number of new housing starts in May, the month following the expiration of the home-buyers tax credit, fell to the lowest level in five month, according to the U.S. Commerce Department.
Housing starts were down ten percent from April to May to a seasonally adjusted annual rate of 593,000 units, the lowest since December. But compared to May 2009, housing starts were up 7.8 percent. Keep in mind, however, that one year ago no one was sure that the U.S. economy wasn't headed into Great Depression II.
Joel Naroff, chief economist for Naroff Economic Advisors, of Holland, Pa., says it doesn't appear that the housing market is going to be the engine that pulls the economy out of the recession.
"The government tried to prop up the construction sector and it worked," Naroff said. "But the incentives are gone and builders are telling us so is demand."
Single-family construction starts fell to their lowest level in a year. Multi-family activity - construction of condos and apartments - actually rose. The big problem was in the South, where activity declined by over 20 percent. It was actually up in the Midwest and West as the fall off in single-family starts was offset by condo construction. However, no region posted a gain in single-family activity.
"Looking forward, the news is not great, at least for the stand alone home," Naroff said. Permits were off sharply. But apartments and condos look to be the place to be as permit requests for those units were up. Builders are trying to keep inventory under control as the number of home under construction was down once again."
May housing numbers are viewed as a good barometer of where the housing market stands, since consumers who wanted to take advantage of the federal tax credit had to get their contracts signed before the end of April. Naroff and other economists say the first numbers are worse than expected.
Analyst Meredith Whitney, in an interview with Fortune Magazine, underscored her prediction for a double dip in housing. Whitney said foreclosures are increasing, not decreasing, with more to occur in the second half of the year.
