By Renae Merle
Washington Post Staff Writer
Friday, April 17, 2009
New-home construction tumbled 11 percent in March, according to government data released yesterday, dashing hopes that the troubled housing market had begun to improve.
The drop was bigger than analysts had expected and was a reversal from the surprise 20 percent jump in new-home construction in February, which had stoked hopes of a market rebound. Most of the drop came in the market for multi-family housing such as condominiums and apartment buildings with five or more units, which tumbled 42.6 percent.
Overall starts fell to an annualized rate of 510,000, the second lowest on record, according to the Commerce Department. That is 48.4 percent below March 2008.
The housing market remains weak, with the number of homes for sale far outpacing depressed levels of demand, analysts said . Builders competing against a glut of foreclosed homes on the market, which are driving down prices, also have struggled to secure construction loans and coax potential buyers into the market.
New-home construction fell 17 percent in the South, which includes the Washington region, and 26 percent in the West. It was up 6 percent and 16 percent, respectively, in the Northeast and Midwest.
Construction levels will likely fall far more this year before beginning to rebound, said Bradley F. Hunter, chief economist of Metrostudy, a research firm that follows home builders. "There is little sign that builders are inclined to increase production any time in next nine months," Hunter said.
Building permits, another critical indicator of the health of the new-home market, fell 9 percent in March to the lowest level on records dating to 1960. That dampens hopes that demand will rebound in the near term, analysts said. "Nothing in the latest data-- especially the weak permitting figures -- suggests an imminent rebound," said Mike Larson, a housing analyst at Weiss Research.
Still, analysts found a silver lining in some of the data. While new-home construction fell overall, construction of single-family homes was unchanged. It remains at depressed levels but could be stabilizing, analysts said.
"We are reaching that level of starts where it would be hard to see it go much lower. I think we're bouncing along the bottom right now," said David Crowe, chief economist for the National Association of Home Builders.
The group's monthly index of home builder confidence released Wednesday reached its highest level since October 2008 but remains weak. Builders, Crowe said, have grown more confident that sales will pick up in the next six months, but have adopted a wait-and-see attitude. "The builders, they are not going to put more into the inventory, until it's clear the consumers have come back," he said.
That may require a rebound in the labor market, which is not expected soon, analysts said. For example, the number of workers making initial requests for unemployment benefits fell 53,000 last week to 610,000, according to government data released yesterday. But jobless claims remain elevated -- now more than 6 million people are collecting benefits -- and are likely to resume their upward march, analysts said.
Wall Street largely shrugged off the mixed economic data yesterday and cheered better-than-expected earnings from J.P. Morgan Chase. The Dow Jones industrial average, an index of blue-chip stocks, gained 1.2 percent, or 95.81 points, to close at 8125.43, while the broader Standard & Poor's 500-stock index rose 1.6 percent, or 13.24 points, to 865.30. The tech-heavy Nasdaq composite index climbed 2.7 percent, or 43.64 points, to 1670.44.
"We went into this earnings season with a lot of trepidation. So far, it's not as bad as we thought it was going to be," said Philip Orlando, chief equity market strategist at Federated Investors. Solid earnings reports and projections from Goldman Sachs, Wells Fargo and Chase "have helped set a much more constructive tone," he said.