Housing Starts Making Case For New Stimulus

Today's report on new housing construction shows that home builders backed away from beginning new single family projects after the federal tax credit program ended at the end of April. This is one of the first housing reports to follow the end of the tax incentive. I'm reading analysis at Calculated Risk to see what conclusion he draws from the data. He is very thorough in his real estate coverage. I believe that the deep rooted importance of home construction and ownership in our economy is going to motivate a new federal incentive program. Here is the housing report...

Homebuilders are playing it cautiously after the close of the special tax credits program. Housing starts in May fell back 10.0 percent, following a 3.9 percent boost in April. May's annualized pace of 0.593 million units came in well below the market projection for 0.650 million units and was up 7.8 percent on a year-ago basis. The decline in the latest month was led by a 17.2 percent decrease in single-family starts, following a 5.6 percent gain in April. The multifamily component actually rebounded 33.0 percent after a 5.1 percent drop the prior month.

By region, the drop in May starts was led by a 21.3 percent plunge in the South Census region with the Northeast declining 6.3 percent. The West and Midwest posted gains of 10.8 percent and 4.9 percent, respectively.

Permits declined 5.9 percent, following a 10.9 percent fall in April. The May rate of 0.574 million units annualized was up 4.4 percent on a year-ago basis.

Today's numbers are disappointing-showing more weakness than expected. We could get some bottoming in starts soon if more homes close from the special tax incentives program and eat into new home inventory. The deadline for signing a contract was April 30 but the deadline for closing is now the end of June. Equity futures and Treasury yields declined on the news.