Data Provider Warns on Green Shoots in Residential Construction

Construction information provider Reed Construction Data sounded a warning that residential construction might yet be a long way off from green shoots.

“Working against the foregoing is a huge overhang of existing homes that are now owned by the banks and are being discounted in price,” Reed Construction’s Alex Carrick noted in recent commentary.

“This will be exacerbated further by ends to government-mandated moratoriums on sub-prime mortgage foreclosures,” he added. “Plus there is a round of prime mortgage foreclosures upcoming in the hardest-hit economic regions of the country, mainly in northern auto sector and durable goods-producing states.”

Reed Construction pointed out the US Census Bureau’s recent figures that show new home sales “almost exactly flat” since January 2009 at about 340,000 units sold in May.

“This is important because, with new home starts so low, the unsold inventory has continued to drop,” Carrick said in the commentary. “The number of unsold single-family new homes in the U.S. is now well below levels much earlier in this decade, going as far back as the dot.com collapse.”

The data company’s commentary noted 10.2 months of unsold inventory in May at the current monthly sales rate, down from January’s 12.4-month high.

The data provider also noted 532,000 new home starts in May, little ahead of their five-month average so far in the year. Starts in the Northeast and South came in slightly below their five-month averages, while the Midwest remained almost static and the West posted starts well above its year-to-date average level — 114,000 in May versus a 117,400-unit monthly average.

Kindling the stalks of growth anticipated by Reed Construction are the $8,000 tax credit for first-time home buyers, high housing affordability and a changing population trends toward young consumers embarking on homeownership.

Write to Diana Golobay.

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