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American home building low could have silver lining

Catherine Deshayes

Home building in the USA fell sharply last month, hitting the lowest level for 17-years, according to a Census Bureau Report, but this could help the glut of unsold homes in the market.

Whilst home sales in America teetered near a 10-year low, property values dropped and consumer spending cooled, house building also hit a new low.

The Government report revealed that housing starts plunged 11% to an annual rate of 965,000 from a revised 1.084 million pace in June. This was the lowest level for 17 years.

Permits - often seen as a sign of builders' confidence in the housing market - tumbled 17% to an annual rate of 937,000 from a revised 1.138 million in June.

The sharp fall in building activity suggests that home building will continue to be a drag on the economy in the second half of 2008.

Earlier this year, many economists hoped that building activity would bottom out this summer and start to show signs of improvement.

The continued drop in building could help property market back on the road to recovery.

Since demand for homes remains weak, the glut of unsold homes will only ease if fewer new homes are built, which is exactly what is happening at the moment.

In June, builders faced a median wait of 8.4 months to sell a completed home, the longest delay in selling time in 25 years, according to another Census Bureau report issued recently.

David Seiders, Chief Economist for the National Association of Home Builders, says he's hopeful the historically low levels of single-family permits is a sign that the glut of homes on the market could finally start to decline.

"I am hopeful that the market for new homes will hit bottom in late 2008 or early 2009, but my forecast could prove optimistic given other problems, such as rising job losses and the credit crunch.

"The continuing rise in foreclosures adds to the glut of homes available for sale, particularly in markets such as California and Florida.

"We're dealing with a weakening economy in the second half of this year, and early 2009 doesn't look that great either. We don't have any numbers that really show stabilization in the housing market just yet, said Mr Seiders.

America's second most successful builder by revenues, Centex, reported a larger-than-expected loss last month.

Meanwhile, the largest builder by revenue, Pulte Home, did slightly better than was expected. Only one major builder, NVR has reported a profit through the current downturn, although its earnings have plunged.

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