Housing starts and permits drop in May as tax credit expires

Housing starts and permit data

With the expiration of the home buyer tax credits that expired at the end of April, May housing starts and permits were forecasted to decline a bit, and right on schedule, reports show a downturn in both. The good news is that although there is a drop, it is not as dramatic as some expected. Housing starts are down 17.2% nationally which is its slowest pace since May 2009 and new home production declined 10%, the slowest pace since December 2009. Permits, an economic indicator used as a forecasting tool for the future, dropped 9.9% in May.

Interestingly, however, the real estate sector varied widely from region to region. For housing starts, the West region actually increased 10.8% and the Midwest rose 4.9%, although the Northeast dropped 6.3% and the South declined 21.3%.

Permits dropped in all regions, but the Norhteast performed the best by only dropping 1.5%, followed by the South which dipped 5.2%, the West down 6.8% and the Midwest down 9.6%.

It is of note that housing starts performed well in the West and Midwest, but permits declined most sharply in those two regions.

What the future holds

“Today’s numbers show an anticipated pull-back on single-family building following the tax credit deadline,” said David Crowe, National Association of Home Builder’s Chief Economist. “No doubt, a certain amount of building and buying activity that would have taken place in May was pulled forward to accommodate the program’s end date, which is why we have projected some softening of the numbers in the second quarter. That said, in the coming months, an improving economy, rising employment, low mortgage rates and stabilizing home values should play their part to keep the housing market moving forward.”

According to NAHB, Crowe noted that the ongoing difficulties builders are having in obtaining financing for viable new projects and accurate appraisals of new homes are complicating factors that are slowing the industry’s recovery.

CC Licensed image courtesy of Doug Garner via Flickr.com.