Home construction sinks 5 percent in June

Housing starts fell more than forecast in June, casting doubt on the real estate market's recovery.
By Dina ElBoghdady
Washington Post Staff Writer
Wednesday, July 21, 2010

Builders cut back on new-home construction in June even more than analysts had expected, dragging down housing starts to their lowest level since October as pessimism about the real estate market deepened.

Construction of single-family homes and apartments plunged for the second consecutive month to a seasonally adjusted annual rate of 549,000, the Commerce Department reported Tuesday. That's a 5 percent drop since May and far more than the 2.7 percent decrease predicted by analysts polled in a Bloomberg survey.

Home starts fell in every region of the country, driven by a 21.5 percent drop in construction of multifamily homes. Groundbreakings for single-family homes slipped 0.7 percent to an annual rate of 454,000.

The pullback is a response to the nation's high unemployment rate, an industrywide tightening of lending standards and the expiration of a lucrative home-buyer tax credit. All have helped drag down demand for housing.

"Builders are not going to get ahead of demand," said Mark Vitner, a senior economist at Wells Fargo Securities. "They could not get the financing [to build new homes] even if they wanted to."

Against that backdrop, builder confidence has slumped as the industry struggles to entice prospective buyers and compete with aggressively priced foreclosures in a market already flooded with an excess supply of homes.

If foreclosures continue to mount and add to the glut, the prospects for a housing rebound will dim, analysts said.

On Tuesday, the government released a separate report showing that the Obama administration's flagship foreclosure-prevention initiative, Making Home Affordable, is losing traction.

About 530,000 borrowers facing foreclosure have dropped out of the program since its launch in March 2009. Most of them had taken part in the initiative on a trial basis but failed to secure a permanent loan modification.

Those cancellations made up about 41 percent of the borrowers who entered the program. On Tuesday, federal housing officials cited incomplete paperwork, missed payments during the trial stage, and failure to meet income and debt requirements as top reasons for failing to transition to a permanent modification.

John Taylor, chief executive of National Community Reinvestment Coalition, said the results have been disappointing. "Less than 400,000 people got permanent loan modifications since the program began and we've seen about 5.3 million foreclosures in the same time," he said, citing figures from RealtyTrac.

Federal housing officials said that less than 2 percent of the homeowners who dropped out of the program have had their homes sold in a foreclosure and about 45 percent of them entered into modification programs outside the government's venue.

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