Housing Starts Drop in December
Some chilling news for the housing market.
In December, builders broke ground on fewer homes than what analysts
had expected, dampening enthusiasm about a quick market turnaround.
Housing starts fell 4.1 percent to a 657,000 annual rate, according to
the Commerce Department.
Analysts polled by Bloomberg were expecting an annual rate of 680,000
starts. The numbers were down 0.1 percent from the previous month, but
up 7.8 percent when compared to the same year ago period, a department release said.
The drop in December’s numbers indicate a slowdown in construction
of apartment buildings, according to Bloomberg. Economic uncertainty,
depreciating home values, foreclosures, joblessness and a flood of
inventory in the market has discouraged builders from shoveling dirt for
new projects.
“There’s little reason for builders to ramp up residential
construction in any strong way until we work off more of the existing
supply of homes,” Sam Bullard, a senior economist at Wells Fargo
Securities LLC in Charlotte, North Carolina told Bloomberg. Bullard was
expecting a rate of 660,000 starts for December. “There’s still issues
with foreclosures. We suspect prices are going to go down another 5 to 6
percent, but we do expect them to bottom this year and gradually pick
up from there.”
The one good news is single-family home construction climbed 4.4
percent to 470,000 units. That makes a lot of home builders optimistic.
“The demand for new, single-family homes
is finally starting to firm up in an increasing number of markets
nationwide,” said Bob Nielsen, chairman of the National Association of
Home Builders (NAHB) and a home builder from Reno, Nev in a release.
“This emerging trend is allowing builders to put more crews back to
work, and could be even stronger if not for the overly tight credit
conditions that prevail for both builders and buyers, as well as the
continuing foreclosure crisis and the challenges of obtaining accurate
appraisal values on new homes.”
Nielsen said policymakers should be doing everything possible to
address the problems plaguing the industry and help in the market’s
recovery.
Home Builders’ Sentiment Rises
Despite the fall in housing starts in December, home builders’
sentiment climbed to its highest level this month since 2007. The
National Association of Home Builders housing market index
rose four points in January to 25. The results beat analysts’
expectations. Economists polled by Dow Jones Newswires were expecting a
reading of 22, according to the Wall Street Journal. Although the
reading is way below 50, a sign of a healthy housing market, the paper
reported that the positive gain could be indicative of the housing
market finally stirring up from its deep slumber.
“This is not another false dawn; it’s the real deal,” Ian
Shepherdson, chief U.S. economist at High Frequency Economics told the
WSJ. He said that record low mortgage rates and improving job market
are making people more “willing to take the plunge into housing.”
Improvements were recorded in all three components of the index.
Current sales condition and the measure for traffic from potential
buyers rose three points touching the highest level since June 2007. The
measure for sales expectations in the next six months increased three
points to 29.
But builders are still cautious, said NAHB Chief Economist David Crowe in a release.
“Many builders continue to voice concerns about potential clients
being unable to qualify for an affordable mortgage, appraisals coming
through below construction cost, and the continuing flow of foreclosed
properties hitting the market,” Crowe said.
A Million Homeowners May Get Mortgage Write-Downs
U.S. Housing and Urban Development Secretary Shaun Donovan said this
week that a proposed deal with banks over foreclosure processing could
result in about one million homeowners getting mortgage write-downs.
The agreement could mean the largest slash in mortgage payments since the credit crisis happened, Reuters reported.
“We’re very close to a settlement that would both fix the servicing
problems, but also help over a million families around the country stay
in their homes and get help,” Donovan said at a U.S. Conference of
Mayors meeting in Washington, according to Reuters.
The deal could provide about $20,000 reduction for each of the million borrowers, Reuters said.
It could also save a lot of homes from ending up in the foreclosure pool.
The announcement comes in the wake of dialogues between federal and
state and bank officials to resolve accusations of misconduct in
foreclosure processing. In return for the relief for homeowners,
estimated between $20 billion to $25 billion, Bank of America Corp,
Wells Fargo & Co, JPMorgan Chase & Co, Citigroup and Ally
Financial Inc., will be able to avoid potential lawsuits from the
government.