Housing Starts Fall a 2nd Month

From Associated Press

Construction of new homes slipped for a second month in August, providing fresh evidence that the nation’s housing boom might be cooling.

The Commerce Department reported that housing starts dropped 1.3% last month after a decline of 1.5% in July, marking the first back-to-back declines in housing starts since early 2004.

Even with the declines, housing starts totaled 2.01 million units in August, the eighth month out of the last nine that housing was above the 2-million mark.

Hurricane Katrina had little effect on the August data because the storm hit late in the month, but analysts predicted a more adverse effect in September, reflecting forced shutdowns of construction sites in Gulf Coast areas hit by the storm.


However, rebuilding in the coming months should add to activity, but not enough to overcome an expected slowdown as higher interest rates start to weigh on one of the economy’s standout performers.

“We see a flattening of housing starts and the beginning of a cooling process,” said David Seiders, chief economist at the National Assn. of Home Builders, an industry trade group.

A survey of builder sentiment dropped in September for the third straight month to the lowest level it has seen in two years.

Seiders predicted that for all of 2005 housing starts would total 2.02 million units, up 3.6% from last year’s pace and the best showing in more than two decades.


For 2006, however, Seiders forecast that housing construction would drop by 4.8% to about 1.92 million starts. He said he added only 25,000 new starts to that figure to represent rebuilding from Katrina, expecting that the effort would be stretched out perhaps as long as five years.

Though analysts are not forecasting a repeat of the dramatic plunge in stock prices that occurred in 2000 with the bursting of a speculative bubble in the stock market, they are looking for a slowing in price gains nationally and possibly price declines in the nation’s hottest markets.

Ken Simonson, chief economist for the Associated General Contractors of America, a trade group, forecast that prices for building materials such as lumber and cement would rise 10% or more next year, reflecting increased demand in the wake of Katrina. That is up from a 6% to 8% increase Simonson had forecast in the cost of building supplies before Katrina hit.

For August, construction of new single-family homes fell 0.5% to 1.71 million units, and construction of multifamily units fell 6% to 328,000 units.

By area of the country, construction rose 13.3% in the West to an annual rate of 561,000 units. All other areas of the country posted declines in August from their level of activity in July.