Home Building Activity Remains Slow Nationwide

The home building sector remains discouraged about the housing market and new home construction as of November, according to a recent survey held by the National Association of Home Builders.

The NAHB index for home builders’ confidence dropped to 17 in November from the unrevised index of 18 in October. Before the housing crisis, the NAHB index had never fallen below 20 in the 24-year history of the index, but over the past 19 months, the index remained below 20 points.

The index also has been below 50 points – the break-even level – for 43 consecutive months already. The index improved in September to 19 points, as indications of improvements in the market appeared, such as increases in home sales and prices. But the index later fell as home builders became discouraged by the approaching expiration of the federal tax credit scheme.

Goldman Sachs economist Ed McKelvey said that the October index was disappointing because it reinforced the view that recent increases in home sales were temporary and that the transitory factor of federal tax credit was largely driving home sales increases.

The one positive thing about the study was that it was held before Congress approved the proposed extension of the federal tax credit.

A study conducted by TD Bank Financial Group also showed a sharp slowdown in home building activity in October. TD Bank reported that new residential construction decreased by nearly 11 percent from 592,000 units in September to 529,000 units in October. The October count was far below the industry forecast of 600,000 units and was the second monthly decrease over the past 6 months. It also marked the lowest level of new home construction since April.

New single-family house construction dropped by 6.8 percent to 476,000 units and new multi-family construction fell by 15.2 percent to 89,000 units.

Housing starts in October fell by nearly 32 percent from October last year and dropped to almost 77 percent below their peak level of 2.27 million housing units in January 2006. Building permits also declined by 4 percent on a month-over-month basis to 552,000 units, driven by a drop in building permits for single-family units. It was in the multi-family subsector where building permits rose by six percent to 123,000 units.

The two reports are disappointing to housing analysts and housing market participants, but the expansion and extension of the federal tax credit are expected to spur increased activity in the home building sector.

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