Thursday, December 20, 2007

Data fail to dispel US housing gloom

The Financial Times
By Daniel Pimlott in New York

The US housing slowdown accelerated last month, cutting deeper into economic growth, as the number of new single family homes starting construction fell to a 16-year low.

Housing starts fell 3.7 per cent last month to an annual rate of 1.187m after unexpectedly rising by 3 per cent in October, the Commerce Department said on Tuesday. The drop was smaller than the 4.3 per cent decline forecast.

But overall starts were boosted by a small rise in multi-family building. The key single family number fell 5.4 per cent to its lowest since 1991. Single family starts are 35 per cent lower than in the same month last year and at less than half their level of two years ago.

“We are probably coming to a bottom in the housing slump. This doesn’t mean you are going to see anything get better, but it means things aren’t going to get any worse,” said Drew Matus, economist at Lehman Brothers.

A combination of stricter lending standards and falling house prices have deterred people from buying houses, and homebuilders from building them. There is also a record glut in the inventory of new homes.

The drop in homebuilding “is actually a positive at this point because we want the market to come back into balance,” Mr Matus said.

Housing starts are the biggest contributor in the housing sector to economic growth. Falling housing construction cut 1.1 per cent from gross domestic product in the third quarter.

“The accelerating drop in starts means that the direct impact of the housing crash on GDP will be bigger in the fourth quarter,” said Ian Shepherdson of High Frequency Economics. “With foreign trade and inventories also likely to be much less supportive of growth, and consumption slowing, we look for GDP growth of only about 1 per cent.”

A dramatic 16.3 per cent drop in starts in November in the north-east helped pull down the national figures.

Building permits, which indicate future homebuilding activity, fell by 1.5 per cent to a fresh 14 year low, after a huge 6.6 per cent drop in October.

The National Association of Home Builders/Wells Fargo confidence index stayed at a record low of 19 for a third month in December, indicating that builders do not expect an upturn in their fortunes any time soon.

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