Protected: U.S. Housing Starts Hit Two-Year Record on NY Technicality

Source: http://feeds.feedburner.com/~r/USMoneyMorning/~3/338913586/
Posted on Friday, July 18th, 2008 | In Current Market News, Stocks to Watch

Contributed by: Money Morning (http://moneymorning.com) -

By Jennifer Yousfi
Managing Editor

Housing starts made a sizeable 11.6% jump in June, the Commerce Department announced yesterday (Thursday). However the surprising surge was explained by a change in New York City code law, rather than a true turnaround in the troubled housing market.

“This report is much weaker than it looks,” Ian Shepherdson, an economist at High Frequency Economics, a research firm, wrote in a note, The New York Times reported. “All the increase in headline starts and permits reflects a rush to begin multi-family construction projects ahead of a change in the N.Y.C. building code.”

Even with the large number of condo and apartment starts the revised New York laws added to the report that caused the double-digit increase from May, June starts were 23.9% lower than the same period in 2007. Adding to the mixed message of the report, single-family housing starts, which some consider a better indicator for the health of the overall housing market, were down 3.5% from May.

“It is nice to see housing starts jump, but it would be better if it occurred across the country not just in New York,” Joel Naroff, president and chief economist of Naroff Economic Advisors said in a note to clients after the housing starts release.

Once the atypical 250% increase in multi-family units in the Northeast is stripped out of the report, it becomes apparent that single-family home construction is at its weakest pace in over 17 years. Other U.S. regions all showed declines in housing starts and single-family starts were down nationwide.

“Itâ€™s still a very, very weak housing market around the country,” Stuart Hoffman, chief economist at PNC Financial Services Group Inc. (PNC), told Bloomberg News. “Builders are coping with sharp oversupply, a big overhang of single-family homes that for the most part are still falling in prices.”

The housing market remains week and this year seems destined to hit historic lows as the United States struggles through the worst housing depression in a generation.

Housing starts for 2008 will almost surely fall below the 1 million mark for the first time since World War II, Patrick Newport, an economist for Global Insight Inc., told MarketWatch.

Fannie and Freddie Troubles Put More Pressure on Housing Market

Any turnaround could be put off a bit longer as troubled lenders Fannie Mae (FNM) and Freddie Mac (FRE) cast doubts on any near-term recovery in the U.S. housing markets. Together, the two mortgage giants secure half of the $12 trillion U.S. home mortgage market.

“Fannie Mae and Freddie Mac play a central role in our housing finance system,” Treasury Secretary Henry Paulson said this week. “Their support for the housing market is particularly important as we work through the current housing correction.”

The two government-sponsored entities (GSEs) were originally created to help more Americans afford their own homes and thatâ€™s just what Fannie Mae and Freddie Mac do, by helping to keep lending costs low. But as the GSEs struggle to come up with the capital they need to remain solvent, and experts disagree on the best way to help, the cost of borrowing could very well go up.

Despite a low 2.0% Federal Funds rate, Fannie and Freddie might very well have to charge more for new loans if the two want to survive. And thatâ€™s going to make it even harder for consumers in the market for a new home to eat up some of the huge inventory of houses sitting on the market right now, some of which are there due to the rising rate of foreclosures.

“The foreclosure problem is getting worse and will stay with us well into the next decade,” Mark Zandi, chief economist for Moodyâ€™s Economy.com (MCO) in West Chester, Pennsylvania, said in an interview with Bloomberg News. “The job market is eroding and homeowners have less equity. Lenders are much less willing to work with you if youâ€™ve got negative equity, and youâ€™re more likely to give up your house if youâ€™re deeply underwater.”

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