New-home starts struggle
again in May
Valley data mirror national
trend; yearly total down nearly 35 percent
By Matthew Crowley
Local housing starts slipped
in May, data show, reflecting a national trend.
The Commerce Department reported that new-home construction
fell nationwide during the month as home builders struggled
with the subprime lending crisis and rising mortgage rates.
In its monthly Las Vegas Housing Market Letter, Home
Builders Research reported that there were 1,724 new-home
permits in the Las Vegas Valley in May. The 2007 tally is at
7,934, a year-to-year decrease of 4,154, or 34.4 percent,
the company said.
The average permit count per month through May is 1,586,
Home Builders Research added. So, following the trend, if
Southern Nevada averages 1,600 permits per month for the
rest of 2007, the annual total would hit 19,134, the company
said. That would be a year-to-year decrease of 4,085
permits, or 17.6 percent.
"I think we're going to see permits staying flat, at best,
until late 2008 or early 2009," Home Builders Research
President Dennis Smith said. "We'd like to see things turn
around faster, but unless we see resales start to move some
inventory, I don't we'll see it change."
Meanwhile, the Commerce Department said Tuesday that
construction of new homes and apartments dropped by 2.1
percent last month to a seasonally adjusted annual rate of
1.474 million units, 24.2 percent below the level of a year
ago.
The May decline was in line with expectations and reflected
weakness in the South and West, which offset construction
gains in the Northeast and Midwest.
Permits, considered a good barometer of future activity,
rose by 3 percent in May but that followed a 7.1 percent
plunge in April. The strength last month came from a rebound
in permits for apartment construction, which can be
volatile. Applications for single-family homes fell by 1.8
percent and have been down four of the past five months.
"The downward trend remains firmly in place and there is no
prospect of any near-term relief, given the huge inventory
overhang in the new home market," said Ian Shepherdson,
chief U.S. economist for High Frequency Economics.
Home builders, struggling to reduce record levels of unsold
homes, are slashing prices and offering a variety of sales
incentives, such as kitchen upgrades and free decks, to do
so.
However, they are facing new problems with the recent jump
in mortgage delinquencies, which means that more homes are
being dumped on the market, and a steady rise in mortgage
rates over the past month, with Freddie Mac's national
survey for 30-year mortgages hitting an 11-month high of
6.74 percent last week.
The National Association of Home Builders reported that its
survey of builder sentiment sank in June to the lowest level
in 16 years, a reading of 28, down from 30 in May. The three
major components of the index -- sales, sales expectations
and buyer traffic -- all fell. It was the lowest showing
since February 1991, a period that covered the last major
housing recession.
"The tightening in lending standards is having quite an
impact," said David Seiders, chief economist for the home
builders.
He predicted home sales would likely fall further in coming
months; he didn't see a sustained rebound occurring until
2008.
Seiders said expected construction of new homes and
apartments to dip 22 percent this year after having fallen
13 percent in 2006.
The housing slump seemed near hitting bottom at the end of
last year. But problems in the mortgage industry have
triggered a renewed drop. The level of late payments and
foreclosures on subprime mortgages hit record highs in this
year's first three months, a Mortgage Bankers Association
survey shows.
The percentage of payments that were 30 or more days past
due for subprime mortgages -- loans made to borrowers with
weak credit histories -- rose to a record 15.75 percent in
the January-March quarter.
Housing had boomed for five years, fueled by the lowest
mortgage rates in four decades and soaring home prices that
drove investors into the market. That boom ended in 2006.
Since then, sales of new and existing homes and home prices
in the hottest markets have fallen.
Construction of single-family homes dropped 3.4 percent last
month while construction of apartments rose by 3.1 percent.
By region, construction activity fell by 19.7 percent in the
West and 1.6 percent in the South. Construction was up 15.7
percent in the Northeast and 15.5 percent in the Midwest.
Housing's slump has weighed on the overall economy, dragging
growth to a 0.6 percent rate in this year's first quarter.
Analysts believe growth in the current quarter has rebounded
to a rate of 3 percent or better, despite the problems in
housing.
The Associated Press contributed to this report.
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