Housing Starts Hit 17-Year Low in May
In what now appears to be a desperate attempt to reduce available supply by home builders, the Commerce Department reported Tuesday morning that new starts on residential construction fell to their lowest levels in 17 years during May. Privately-owned housing starts registered a seasonally-adjusted annual rate of just 975,000, the lowest level since March 1991 and 3.3 percent below a revised 1.008 million pace recorded for April. Economists had expected starts to fall to a seasonally-adjusted rate of 980,000, MarketWatch reported Tuesday. May's starts would have fallen further on a percentage basis were it not for a downward revision of April's starts total. April's new construction starts had originally been reported at 1.032 million; the Commerce Dept.'s numbers are routinely revised in subsequent months, and as of late, most of those adjustments have been downward in direction. Single-family housing starts continued to tumble in May as well, falling to an annual rate of 674,000 -- off one percent from the revised total of 681,000 recorded in April. (Overall housing starts include multi-family residences, as well as single-family residences). The May single-family start rate represented a 17-year low, as well. Cutting back Builders are clearly paring back for a downturn that appears to have longer legs than most had hoped for. New housing permits fell 1.3 percent in May to 969,000, while single-family permits fell even more steeply; single-family authorizations fell 4.0 percent to a 623,000 rate, according to the report. The month-to-month numbers on housing starts can be volatile, the Commerce Dept. cautioned; the margin of error, for example, in the single-family starts estimate is 10.7 percent; the margin means that the number of starts may have actually increased. That being said, the numbers are very useful for discerning raw directional trends. Depsite the short-term volatility, it's becoming clear that builders are girding for an extended slump in new housing; overall housing starts are off 32.1 percent from year ago levels, while single-family starts are off even more sharply, dropping 41.2 percent from May 2007. Despite the ongoing woes in the U.S. housing market, futures still suggest traders' collective expectations that the Fed will hold tight on core rates at its next meeting. Concerns over rising inflation have been trumping economic worries during the past few weeks, a sentiment reflected in current expectations for the federal funds target rate. The full report from the Commerce Dept. is available here.