Housing Starts Drop in December

Some chilling news for the housing market.

In December, builders broke ground on fewer homes than what analysts had expected, dampening enthusiasm about a quick market turnaround. Housing starts fell 4.1 percent to a 657,000 annual rate, according to the Commerce Department.  Analysts polled by Bloomberg were expecting an annual rate of 680,000 starts. The numbers were down 0.1 percent from the previous month, but up 7.8 percent when compared to the same year ago period, a department release said.

The drop in December’s numbers indicate a slowdown in construction of apartment buildings, according to Bloomberg. Economic uncertainty, depreciating home values, foreclosures, joblessness and a flood of inventory in the market has discouraged builders from shoveling dirt for new projects.

“There’s little reason for builders to ramp up residential construction in any strong way until we work off more of the existing supply of homes,” Sam Bullard, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina told Bloomberg. Bullard was expecting a rate of 660,000 starts for December. “There’s still issues with foreclosures. We suspect prices are going to go down another 5 to 6 percent, but we do expect them to bottom this year and gradually pick up from there.”

The one good news is single-family home construction climbed 4.4 percent to 470,000 units. That makes a lot of home builders optimistic.

“The demand for new, single-family homes is finally starting to firm up in an increasing number of markets nationwide,” said Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, Nev in a release. “This emerging trend is allowing builders to put more crews back to work, and could be even stronger if  not for the overly tight credit conditions that prevail for both builders and buyers, as well as the continuing foreclosure crisis and the challenges of obtaining accurate appraisal values on new homes.”

Nielsen said policymakers should be doing everything possible to address the problems plaguing the industry and help in the market’s recovery.

Home Builders’ Sentiment Rises

Despite the fall in housing starts in December, home builders’ sentiment climbed to its highest level this month since 2007. The National Association of Home Builders housing market index rose four points in January to 25. The results beat analysts’ expectations. Economists polled by Dow Jones Newswires were expecting a reading of 22, according to the Wall Street Journal. Although the reading is way below 50, a sign of a healthy housing market, the paper reported that the positive gain could be indicative of the housing market finally stirring up from its deep slumber.

“This is not another false dawn; it’s the real deal,” Ian Shepherdson, chief U.S. economist at High Frequency Economics told the WSJ.  He said that record low mortgage rates and improving job market are making people more “willing to take the plunge into housing.”

Improvements were recorded in all three components of the index. Current sales condition and the measure for traffic from potential buyers rose three points touching the highest level since June 2007. The measure for sales expectations in the next six months increased three points to 29.

But builders are still cautious, said NAHB Chief Economist David Crowe in a release.

“Many builders continue to voice concerns about potential clients being unable to qualify for an affordable mortgage, appraisals coming through below construction cost, and the continuing flow of foreclosed properties hitting the market,” Crowe said.

A Million Homeowners May Get Mortgage Write-Downs

U.S. Housing and Urban Development Secretary Shaun Donovan said this week that a proposed deal with banks over foreclosure processing could result  in about one million homeowners getting mortgage write-downs. The agreement could mean the largest slash in mortgage payments since the credit crisis happened, Reuters reported.

“We’re very close to a settlement that would both fix the servicing problems, but also help over a million families around the country stay in their homes and get help,” Donovan said at a U.S. Conference of Mayors meeting in Washington, according to Reuters.

The deal could provide about $20,000 reduction for each of the million borrowers, Reuters said.
It could also save a lot of homes from ending up in the foreclosure pool.

The announcement comes in the wake of dialogues between federal and state and bank officials to resolve accusations of misconduct in foreclosure processing. In return for the relief for homeowners, estimated between $20 billion to $25 billion,  Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co, Citigroup and Ally Financial Inc.,  will be able to avoid potential lawsuits from the government.