Some more grim news. Housing starts dived 5 percent in August, worse than what was expected by economists. On a seasonally adjusted rate, new home construction fell 571,000, according to the U.S. Census Bureau. That’s 5.8 percent down from the same period last year.
The numbers suggest the industry is still comatose and has yet to recover. It also signals the lack of demand for new homes by consumers. Multi-family units were the hardest hit segment with construction declining 12.4 percent. Single family units were trailing at 1.4 percent.
John Canally, an economist with LPL Financial, told the Financial Times that Hurricane Irene had a major role to play in the grim numbers with new construction slipping 29 percent in the northeast, the area hardest hit by the storm. But there were plenty of other culprits, Canally said, including high unemployment, plummeting consumer confidence because of the S&P downgrade and the flood of inventory in the market. Builders very rightly are wary about building new units when there are thousands of products still waiting to be sold. There may be some good news on the horizon though. Future construction climbed 3.2 percent at 620,000, beating analysts expectations. Hopefully those numbers will stay true and provide us with much-needed relief.
Existing Home Sales Rise in August
While new home construction took a beating, sales of existing homes rose, surpassing expectations. Purchases of previously occupied homes jumped 7.7 percent, according to the National Association of Realtors®. That’s a five-month high at 5.03 million annual rate, says Bloomberg. Economists surveyed by the news agency called for a 4.75 million rate. Record low mortgages and spiraling home prices thanks to foreclosures have helped move existing home sales. Experts believe the numbers would have been even better if consumer confidence was on the rise and lending rules were more lenient.
“Housing is near the bottom, and can’t really get much worse,” said Sean Incremona, a senior economist at 4Cast Inc. in New York, to Bloomberg. At the same time, a gain “is by no means a sign that the housing market is doing well. The economic uncertainty offsets whatever positive effect there is from low mortgage rates.” The numbers are little cause for celebration though. Even though sales increased 19 percent compared to the previous year, the median price on existing homes dropped 5.1 percent to $168,300 from $177,300 in August 2010.
Will the West Blow Some Favorable Wind Across the Country?
Not so long ago, California and Arizona were the shining examples of downward spiraling home prices. A new study says that these days the Golden State is selling more homes and at higher prices, according to Mainstreet.com. Sales of single-family homes jumped 8.6 percent in August when compared to the previous month. On a -year-to-year basis, the numbers were up 10 percent. Median price for a single family home was up 1 percent in August from July, but it was still 7.4 percent down from the same period last year. The numbers bring much relief to an industry that has been waiting for the California market to finally hit the bottom before inching its way up. Now, we only hope that the trend that is starting out West will slowly move East and influence the whole country.
Are There Two Housing Markets?
An Associated Press report deems the housing market “bipolar.” On demand are the glitzy homes in expensive neighborhoods, while the rest of the country is painstakingly trying to move inventory in the market with people waiting for a year without a single offer. Prices have dipped 30 percent or more outside the luxury market. That’s a steeper decline than during the Depression, according to the Associated Press. The report says that almost a quarter of American homeowners owe more on their homes than what they’re worth today. Compare that with the expensive market occupied by 1.5 percent of the population, which has in-home spas, sprawling lawns and a long queue of international buyers bidding in cash. According to Zillow.com, prices of $1 million properties rose 0.7 percent since February, while prices of homes valued less than $1 million have tumbled more than 1.5 percent. So, if you have the cash and means, invest in the luxury market. It seems to be the only segment unaffected by tremors in the economy.