Yesterday the National Association of Home Builders reported that confidence levels had hit 16-month lows. Today, we find out why. Home construction dropped 5% in June from a revised-downward May to hit a level not seen since October of last year:
Home construction plunged last month to the lowest level since October as the economy remained weak and demand for housing plummeted.
But driving the June decline was a more than 20 percent drop in condominium and apartment construction, which makes up a small but volatile portion of the housing market. Construction of single-family homes, the largest part of the market, was down slightly. It dropped 0.7 percent.
Overall, construction of new homes and apartments in June fell 5 percent from a month earlier to a seasonally adjusted annual rate of 549,000, the Commerce Department said Tuesday. May’s figure was revised downward to 578,000.
One bright area of the report was an increase in building permit applications, which is a sign of future activity. They rose 2.1 percent from a month earlier to an annual rate of 586,000, however this was also driven by apartment construction.
What is driving the decline? Demand dropped dramatically after the end of the homebuyer tax credit in April, just as it did after the expiration of the first tax credit last November. Not too surprisingly, the new-home building industry finds itself basically in the position before the first tax credit. The bubble has deflated — again.
Two forces have capped demand: joblessness and foreclosures, and the latter is in large part a secondary issue from joblessness. People without jobs, or people who do not feel secure in their jobs, do not go out and buy new homes. For those few who are in the market, the glut of inventory in new homes (around nine months’ worth of sales) and the large inventory in foreclosure bargains mean that new homes don’t need to be built — and aren’t.
We won’t solve the housing crisis until we solve the jobs crisis, and the gimmicky stimuli have wasted money that could have otherwise gone into growth-producing investments. In order to get that kind of growth, we need to dump Obamanomics — which Mort Zuckerman rightly called “our economic Katrina” — and get back to the policies that worked in the past — lower taxes, streamlined regulation, and the retreat of government from the private sector.