Applications for housing permits are a strong and commonly used indicator for housing starts for the Commerce Department, which reported a slight drop for the month of April. The 4% fall was matched by an overall decline in housing starts that exceeded 10% in the homebuilding sector and a predictable dip in stock values in the industry. The National Association of Home Builders takes it as a sign of continued hesitation over building new homes that has persisted for six months in the face of recession fears. For more on this continue reading the following article from The Street.
Homebuilders began construction on 10.6% fewer homes in April, worse than expected, while applications for building permits dropped 4%.
The Commerce Department said early Tuesday that housing starts came in at a seasonally adjusted annual rate of 523,000 in April. The figure compares with a revised rate of 585,000 housing starts in March and came in worse than the rate of 563,000 economists had expected, according to consensus estimates listed on Briefing.com. March’s housing starts rate was originally reported at a pace of 549,000.
Applications for building permits fell 4% to a seasonally adjusted annual rate of 551,000, much lower than the revised March rate of 574,000, and worse than the expected rate of 590,000. March’s building permits rate was originally reported at 594,000.
Building permits are viewed as an indication of future home construction.
Stocks in the homebuilder sector were mostly lower Tuesday morning.
The SPDR S&P Homebuilders(XHB) and iShares Dow Jones US Home Construction(ITB), exchange-traded funds that tracks the sector, were lower by 0.3% and 0.9%, respectively, in premarket trading.
Among individual builders, D.R. Horton(DHI) rose 1.8% ahead of the opening bell, Lennar (LEN) gained 0.9%
Small-cap builder KB Home (KBH) lost 1.1% in premarket activity. Toll Brothers (TOL) and PulteGroup(PHM) were flat.
Data released on Monday showed that the National Association of Home Builders’ index of builder sentiment came in flat in May, month-over-month, despite a rise in home sales, as interest among potential buyers remained sluggish.
The NAHB’s confidence index, which measures builder perceptions of current single-family home sales and sales expectations for the next six months, came in flat at a reading of 16 in May, matching expectations of industry watchers, according to consensus estimates listed on Briefing.com.
Any reading below 50 indicates poor sentiment. The index has not been above 50 since April 2006.
"Builder confidence has hardly budged over the past six months as persistent concerns regarding competition from distressed property sales, lack of production credit, inaccurate appraisals, and proposals to reduce government support of housing have continued to cloud the outlook," said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. "In addition, many builders in this month’s survey cited high gas prices as a further contributor to consumer anxiety and reluctance to go forward with a home purchase."
The homebuilder sector is well off its late-spring peak, when buyers were rushing to take advantage of federal tax credits for homebuyers, and is only slightly higher than at the beginning of 2010.
Whereas other sectors have begun an economic rebound in earnest, the housing sector continues to lag as a bloated supply of homes for sale — both newly built and previously owned — coupled with depressed pricing from foreclosures pressures the market.
This article was republished with permission from The Street.