Tuesday, November 1, 2011

Construction Spending and New Home Sales (another article)

What you’ll see below was part of an article I found, today, on USA Today; article was authored by Derek Kravitz of Associated Press (AP). The part of the article I’ve reprinted below is the part that deals with construction spending and new home sales.

In the construction spending report, spending rose 0.2% in September from August to a seasonally adjusted annual rate of $787.2 billion, the Commerce Department said Tuesday. It was the second straight monthly increase.

Still, spending is barely half the $1.5 trillion that economists consider healthy. Through the first nine months of the year, spending is at $580.9 billion, about 3.5% below the same period in 2010.

Analysts say it could be four years before construction returns to healthy levels.

The biggest gains in September were in private residential construction, which includes single-family homes, apartments and condos. That category increased 0.9%.

Public construction projects, which include schools, roads and government offices, fell 0.6% last month.

A dismal outlook for housing and a weak economy have forced governments to cut spending and builders to scale back construction plans.

State and local governments have been forced to cut back because of severe budget problems, while the federal government has come under pressure to get control of soaring budget deficits.

Home builders started projects in September at the fastest pace in 17 months, a hopeful sign for the economy. But most of the gain was driven by a surge in volatile apartment construction, a sign that many people are choosing to rent rather than own a home.

Americans bought fewer homes during this year's peak buying season than at any time in the past half-century. Unemployment is stuck above 9%, and many people are fearful about buying a home out of concern they could lose their jobs or home prices could fall further.

In September, sales of new homes rose after four straight monthly declines, largely because builders cut prices in the face of depressed demand. This year is shaping up to be the worst for new-home sales on records dating to 1963.

While new homes represent less than one-fifth of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

Builders are struggling to compete with foreclosures and short sales — when lenders accept less for a house than a mortgage is worth. Those homes are selling at an average discount of 20%, and they are lowering neighboring home values.

The weak sales and construction figures underscore how badly the housing market is faring and suggest a sustained recovery is years away. They will also affect home prices, continuing to drive them lower.

Economists at Moody's Analytics say prices might stop falling by early next year. But they don't expect a healthy recovery for housing until 2015 at the earliest.

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