From the Wall Street Journal:
Home Builders Cut Output,
Lending Support to Prices
By KELLY EVANS
June 20, 2007; Page A2
The nation’s home builders continued to cut production last month as they struggled to pare bloated inventories.
Housing starts fell 2.1% in May to a seasonally adjusted annual rate of 1.474 million from 1.506 million in April, the Commerce Department said. Starts were down 24.2% from a year earlier and 35.7% from their peak rate in January 2006.
Building permits, which are required in most localities before construction can begin, rose last month. But much of the gain was a result of permits for apartment buildings. Demand for apartments has been growing as rising interest rates and tighter lending standards have encouraged more families to rent a home instead of purchase one.
Building permits overall increased 3% in May, but single-family home permits fell 1.8%, while permits for apartments gained 17%.
The slowdown in building activity, coupled with reports of rising foreclosures and declining confidence among builders, could mean the tumbling housing market has yet to hit a trough.
“Things aren’t going to get better anytime soon,” said Drew Matus, senior U.S. economist at Lehman Brothers. Mr. Matus said that yesterday’s report suggests that builders are trying to rebalance the market by cutting supply instead of prices — a decision, he said, that is better for builders and for the economy as a whole. “We economists prefer to see a volume adjustment rather than a price adjustment,” he said.