New-home starts struggle again in May - Business

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Jun. 20, 2007
Copyright © Las Vegas Review-Journal

New-home starts struggle again in May

Valley data mirror national trend; yearly total down nearly 35 percent

By MATTHEW CROWLEY
REVIEW-JOURNAL

Click image for enlargement.

Construction workers frame a house Tuesday in Allerton Park, a neighborhood south of Charleston Boulevard and west of the Las Vegas Beltway. New-home starts have slipped in the Las Vegas Valley as homebuilders struggle with a housing slump and a rising inventory of existing homes for sale.
Photo by K.M. Cannon.

Construction workers frame a house Tuesday on the western edge of the Las Vegas Valley. New-home starts are down nearly 35 percent in 2007, and builders are using incentives to sell their new homes.
Photo by K.M. Cannon.

Local housing starts slipped in May, data show, reflecting a national trend.

The Commerce Department reported that new-home construction fell nationwide during the month as home builders struggled with the subprime lending crisis and rising mortgage rates.

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In its monthly Las Vegas Housing Market Letter, Home Builders Research reported that there were 1,724 new-home permits in the Las Vegas Valley in May. The 2007 tally is at 7,934, a year-to-year decrease of 4,154, or 34.4 percent, the company said.

The average permit count per month through May is 1,586, Home Builders Research added. So, following the trend, if Southern Nevada averages 1,600 permits per month for the rest of 2007, the annual total would hit 19,134, the company said. That would be a year-to-year decrease of 4,085 permits, or 17.6 percent.

"I think we're going to see permits staying flat, at best, until late 2008 or early 2009," Home Builders Research President Dennis Smith said. "We'd like to see things turn around faster, but unless we see resales start to move some inventory, I don't we'll see it change."

Meanwhile, the Commerce Department said Tuesday that construction of new homes and apartments dropped by 2.1 percent last month to a seasonally adjusted annual rate of 1.474 million units, 24.2 percent below the level of a year ago.

The May decline was in line with expectations and reflected weakness in the South and West, which offset construction gains in the Northeast and Midwest.

Permits, considered a good barometer of future activity, rose by 3 percent in May but that followed a 7.1 percent plunge in April. The strength last month came from a rebound in permits for apartment construction, which can be volatile. Applications for single-family homes fell by 1.8 percent and have been down four of the past five months.

"The downward trend remains firmly in place and there is no prospect of any near-term relief, given the huge inventory overhang in the new home market," said Ian Shepherdson, chief U.S. economist for High Frequency Economics.

Home builders, struggling to reduce record levels of unsold homes, are slashing prices and offering a variety of sales incentives, such as kitchen upgrades and free decks, to do so.

However, they are facing new problems with the recent jump in mortgage delinquencies, which means that more homes are being dumped on the market, and a steady rise in mortgage rates over the past month, with Freddie Mac's national survey for 30-year mortgages hitting an 11-month high of 6.74 percent last week.

The National Association of Home Builders reported that its survey of builder sentiment sank in June to the lowest level in 16 years, a reading of 28, down from 30 in May. The three major components of the index -- sales, sales expectations and buyer traffic -- all fell. It was the lowest showing since February 1991, a period that covered the last major housing recession.

"The tightening in lending standards is having quite an impact," said David Seiders, chief economist for the home builders.

He predicted home sales would likely fall further in coming months; he didn't see a sustained rebound occurring until 2008.

Seiders said expected construction of new homes and apartments to dip 22 percent this year after having fallen 13 percent in 2006.

The housing slump seemed near hitting bottom at the end of last year. But problems in the mortgage industry have triggered a renewed drop. The level of late payments and foreclosures on subprime mortgages hit record highs in this year's first three months, a Mortgage Bankers Association survey shows.

The percentage of payments that were 30 or more days past due for subprime mortgages -- loans made to borrowers with weak credit histories -- rose to a record 15.75 percent in the January-March quarter.

Housing had boomed for five years, fueled by the lowest mortgage rates in four decades and soaring home prices that drove investors into the market. That boom ended in 2006. Since then, sales of new and existing homes and home prices in the hottest markets have fallen.

Construction of single-family homes dropped 3.4 percent last month while construction of apartments rose by 3.1 percent.

By region, construction activity fell by 19.7 percent in the West and 1.6 percent in the South. Construction was up 15.7 percent in the Northeast and 15.5 percent in the Midwest.

Housing's slump has weighed on the overall economy, dragging growth to a 0.6 percent rate in this year's first quarter. Analysts believe growth in the current quarter has rebounded to a rate of 3 percent or better, despite the problems in housing.

The Associated Press contributed to this report.

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Please enter your name Name: Please enter your email Email: Please enter a comment COMMENTS : (word count limit is 300) You have reached the maximum number of words allowed Current Word Count: Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background. DJ wrote on June 20, 2007 08:35 PM: After reading the similar article in the rj about which cities carry the greatest risk of home depreciation, I notice that many of them have one thing in common, a very high influx of illegal immigrants. Could there be a correlation? Alan, the reason people don't want to move closer to town can be seen on the web's police listing of crimes by location. Also, take a few minutes to check out the $exoffender registry by zip code. They both say it all. Aaron wrote on June 20, 2007 08:19 PM: It's amazing that developers continue to build when Las Vegas is approaching a severe water crisis. Even the plan by the SNWA to suck the rural counties dry won't sustain the amount of growth in this valley. I'm GLAD to see the downturn in housing starts and I laugh at those who thought they were getting a cash cow and ended up with hamburger. JD wrote on June 20, 2007 06:25 PM: Associated Press: “Some homeowners in California, Florida and the southwestern U.S. now face more than a 60 percent chance their property will be worth less in two years, according to the PMI U.S. Market Risk index.” “The index found that 15 of the nation’s 50 largest metro areas have a greater than 50 percent chance of seeing price drops. Eleven of those markets are in California and Florida, including Los Angeles and Miami. The riskiest of all markets are Riverside, Calif., Phoenix, Las Vegas and West Palm Beach, Fla.,each with a greater-than-60 percent chance of depreciation.” Legas Bubble wrote on June 20, 2007 03:19 PM: Another bit of news just hit the wire...Billionare investor Kirk Kirkorian has bailed out of investing anything in MGM...which includes the City Center strip development...indicators are that a real downturn in condo/commerical development even the Strip has lost its luster and the real money guys are bailing out... they know what is coming...Brother!!!!... is there anyone left crazy enough to pay $600, $800 to $1000 sq ft for these sky boxes? Yes there is kiddies...and the same group of promoters are leading the charge! Only schmucks with more money than brains are buying...good luck suckers! Bruce Hofeldt wrote on June 20, 2007 11:08 AM: I have no idea where you get your infomation.But if you drive around or ask people who build houses you would be real shocked.Building is most likely closer down 70% Check it out.Why the cover up? Vegas Bubble wrote on June 20, 2007 10:35 AM: Hoo Haah!!!! The builders, real estate and lending community are the Pied Pipers of this housing meltdown, leading the lemnning buying public to their doom! Anyone dumb enough to be paying anything close to what is being currently listed or offered for sale will be sitting on a declining equity piece of propery...with 23,000 homes for sale and over 14,000 of these vacant...interest rates heading toward 8%...yes folks 8%...(remember 91-94 when rates went from 6.6% to 8.1% in 5 months)...just wait as pricing comes tumbling down and builders fold their tents and creep away to the next "boom town" Every economic indicator in the housing sector is screaming caution...caution...caution...buyers beware!!! You aint seen nothing yet! Jason Voorhees wrote on June 20, 2007 07:31 AM: Houses: Build! Build! Build! Prices: Down! Down! Down! alan berk wrote on June 20, 2007 05:48 AM: the new homebuilders are too stupid for words! 23000 homes are for sale in las vegas. we don`t need aniother tract home built an hour away from soebodies job! the buyers are even more stupid! the congestion on U.S95 and I-15 makes them both parking lots.. there are thousands of homes that these people drive by on their way to their jobs! if you don`t live within 20 minutes of your job your part of the problem! Buy and existing home east of the strip and be prt of the solution! less expensive- save time and money! is that too simple for all of you!?