Housing starts fell in May from April to lowest level in 5 months

By Dina ElBoghdady
Washington Post Staff Writer
Thursday, June 17, 2010

Housing starts sank in May to the lowest level in five months, according to a government study released Wednesday, highlighting unease among builders about the U.S. real estate market now that a lucrative federal tax credit aimed at energizing home buyers has expired.

The Commerce Department reported that housing starts fell 10 percent from April to May, to a seasonally adjusted annual rate of 593,000 units, the lowest level since December. But, compared with the same month last year, housing starts are up 7.8 percent.

New construction on single-family homes plunged more sharply, dropping 17.2 percent month over month, to a seasonally adjusted annual rate of 468,000 units, the report said. Many analysts who track the housing industry expected a drop, although not such a big one, and attributed the decline in part to poor builder confidence about the market's prospects now that the tax credit, which targeted some first-time buyers and certain repeat homeowners, has ended.

To get the tax credit, prospective buyers had to sign a contract by April 30 and close on the transaction by June 30. The program sparked purchases and construction at the start of the spring selling season, but many analysts said they think the credit enticed some buyers into purchasing homes earlier than they otherwise would have, thereby eating into sales this summer.

"Now the credit is gone, it's payback time," Nigel Gault, chief U.S. economist at IHS Global Insight, wrote to clients.

Against that backdrop, the National Association of Home Builders reported this week that builder sentiment has sagged this month. Although interest rates are at record lows, builders are struggling to compete with less expensive existing homes, including aggressively priced foreclosures.

The Commerce Department also reported that housing permits, a gauge of future construction, fell 5.9 percent from April to May, to a seasonally adjusted annual rate of 574,000 units, but rose 4.4 percent compared with a year ago. Home completions dropped 7.4 percent month over month, to a seasonally adjusted rate of 687,000 units, and 15.4 percent below May 2009.

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