Builders: Housing Starts Increase in Midwest
Mortgage rates may be rising and defaults on bad credit home loans may be mushrooming, but don’t tell that to Midwestern home builders.
According to the Chicago Tribune, builders have ramped up construction in the nation’s heartland by 16 percent last month, along with a similar jump in the Northeast.
Some of the improvement was weather related, but the figure still lifted a little of the gloom for housing economists, who have been focused on the bad credit mortgage meltdown.
“There are tentative signs of a rebound, at least in some parts of the country, although this report is a mixed bag,” said economist Adolfo Laurenti of LaSalle Bank.
Signs of stabilization have been slow to appear, “but the ingredients for a revival appear to be in place for this year’s third quarter,” he said.
Overall, housing starts fell 2.1 percent in May, to an annual rate of 1.474 million units, compared to a revised April estimate of 1.506 million.
Permits for new construction rose 3 percent, to a rate of 1.50 million, and some of the improvement in permits came from multi-family home units, the Commerce Department reported.
Aside from the Midwest and Northeast, home construction was weaker.
Laurenti said “the brunt of the housing adjustment is taking place in the West,” where starts were off by 20 percent in May.
The markets in Las Vegas and parts of the California housing market have been hit severely by the industry slowdown.
Even with the halting signs of improvement, construction levels remain 24 percent below those of a year ago.
“The numbers have been all over the place, but we remain lower year-over-year. Builders are growing resigned to the idea that we will be in a trough for a while,” said Schaumburg-based housing consultant Tracy Cross.
Signs of improvement last month might have been skewed a bit by a stronger rental market, which is boosting construction of multifamily housing in some areas, he said.
To boost business some Chicago housing market builders have been offering a temporary discount on Illinois mortgage rates or help with selling an existing home when buyers sign for a new one.
One builder has offered to buy an existing home if, after several months, there seems to be no way to sell it.
Still other builders, struggling to reduce high levels of unsold homes, are reducing prices and offering a variety of sales incentives, such as free kitchen upgrades and reduced prices for finished basements.
Some economists remain pessimistic about the outlook.
“We continue to see a deterioration in demand for single-family homes, and so it looks like there’s more downside to go for the housing market,” said Tim McGee, chief economist at U.S. Trust Corp. in New York.
Deep declines in the bad credit mortgage loan market have been sending tremors through Wall Street, as investment funds that bought a stake in those loans are starting to quake.
“The outlook for mortgage-backed securities that contain the riskiest bad credit home loan products made last year has deteriorated further, and home builder sentiment in June fell to its lowest level since February 1991,” said Patrick Newport of Global Insight in Lexington, Mass.
While some analysts say they believe a turnaround could appear in late summer, Newport said, “The latest developments may push back the recovery a few more months.”
Investment analysts said tighter credit stemming from a mortgage fiasco like this could negatively affect home buyers with weak credit while helping to prolong the troubles in the housing industry.
In addition to its impact on the housing market, it also could force banks, hedge funds and pension funds to acknowledge substantial losses, lowering credit access for many down the road.
Analysts said the housing slowdown cut 0.9 percent from growth in the first quarter of this year, after subtracting 1.2 percent in the second half of 2006.
Expansion in the first quarter slowed to a 0.6 percent annual rate, the weakest in four years. But many economists believe it is recovering, and is currently closer to 2.5 percent.
Thirty-year home loan rates rose to an average of 6.74 percent at the end of last week, from 6.16 percent at the end of April, according to mortgage giant Freddie Mac.
The number of U.S. homeowners who face possible eviction because of late home mortgage payments rose to an all-time high in the first quarter, led by subprime borrowers, the Mortgage Bankers Association said.
SOURCE: Chicago Tribune