Real Estate Outlook: 10 Percent Decline in Home Starts

Last week's 10 percent decline in new home starts got all the headlines, and even caused some of Wall Street's doomsday analysts to talk again about a "double dip" in the US housing market.

But how important an indicator was that drop in starts, really?

Well, any decline in housing production is meaningful and worth noting.

But in this case everybody familiar with the housing market -- Realtors, builders, government economists among others -- predicted this drop two to three months ago!

Why? Because the expiring federal tax credits pulled tens of thousands of transactions forward this year into the months of February, March and April.

Bob Jones, chairman of the National Association of Home Builders, put it this way: "Builders tapped the brakes on new home production and pulled fewer permits for new homes in May in response to an expected lull in buyer demand" following the end of the tax credits.

Lawrence Yun, chief economist for the National Association of Realtors, also had forecast the drop and said -- don't be surprised if existing home sales come in lower in the next month or two for the same reason.

Unfortunately, though, all the negative news about declining housing starts obscured some important indicators elsewhere in the marketplace last week.

For example, new applications for mortgages to purchase homes, which had been falling for the past six weeks because of the phaseouts of the credits, took a big jump last week -- up by 17.4 percent in raw numbers over the week before.

Home prices also appear to be headed in a positive direction in many parts of the country. The latest survey from Fiserv Inc, based on the Case-Shiller and Fiserv home price indexes, found values trending upward in 155 of the 384 metropolitan areas surveyed, including some of the markets hit hard by the bust and recession.

California markets are especially encouraging, according to Fiserv, with price gains in 24 of 28 metropolitan areas. Dave Shiff, chief economist for Fiserv, attributed the trend to growing "optimism that a sustainable economy recovery is underway. More and more, " he said, "consumers have confidence that buying a home doesn't mean catching a falling knife."

Meanwhile, another national housing price index, the Altos Research 10-city composite, found listing prices higher in major markets: Up 2.4 percent in San Francisco, 1.4 percent in Dallas, 1.2 percent in metropolitan Washington DC.

The key takeaway point here: Keep your eye on all the market directional signals month to month, not just the ones that draw the big headlines.

Source: Realty Times