New-Home Construction Falls to 2-Year Low

New home construction continued to fall in July, dropping to its lowest rate in nearly two years, the U.S. Commerce Department reported yesterday.

U.S. housing starts fell 2.5 percent to 1.8 million. This is the fifth consecutive decline in housing starts and the slowest pace since November 2004.

Richard DeKaser, chief economist at Cleveland-based National City Corp., says builders are breaking ground for fewer homes because they have big unsold inventories of previous projects." What we are continuing to see is the supply side is slowing and declining at a pretty swift rate," said DeKaser. "We should expect to see more of this." The economist cited a survey released Tuesday by the National Association of Home Builders, which showed a plunge in builder confidence.

Builders' views on current and expected sales had fallen to its lowest level since February 1991.

Other observers are more optimistic. "Housing is still performing on a level that far exceeds the norm for the industry, albeit at a rate that has backed off somewhat from the 2 million-plus pace of recent years," says Bob Walters, chief economist for Michigan-based Quicken Loans.

Source: The Chicago Tribune, Sharon Stangenes (08/17/2006)