Transcripts

The Housing Sector Shows More Signs of Uncertainty

SUSIE GHARIB: It looks like the housing market still has more room to fall. That's the opinion of analysts after the Commerce Department reported housing starts dropped in May, the first decline this year. Housing permits, an indicator of future activity, showed mixed results. And as Darren Gersh reports, there's more uncertainty on the horizon.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Housing starts no longer look like they are falling off a cliff, but they are still rolling downhill. The Commerce Department reports overall housing starts, including apartment buildings, were down 2.1 percent in May. That's more than 20 percent below the level a year ago. Starts for single family homes fell harder, down 3.4 percent last month. Building permits, considered a leading indicator, were up 3 percent overall, but permits for new single- family homes were off almost 2 percent. National Association of Home Builders economist Dave Seiders says the collapse of the sub-prime market has led to a sharp increase in sales contract cancellations, leaving builders in no mood to expand.

DAVID SEIDERS, CHIEF ECONOMIST, NATIONAL ASSOCIATION OF HOME BUILDERS: The trend is still clearly downward, but the rate of decline is slowing. I think it will continue to slow as we go forward. I mean, these numbers are not going to hit zero.

GERSH: The pain has been most acute for the nation's big, publicly- traded home builders, who focused on hot markets that have now gone cold. Economist Mark Zandi says most of the adjustment so far in the housing market has come from a pull back in new construction.

MARK ZANDI, CHIEF ECONOMIST, MOODY'S ECONOMY.COM: You get the sense that we're coming to a bottom, in terms of construction. So that means, if this market is going to clear, if we're going to find a bottom in the housing market, it's only if sellers cut prices. If they don't, then the builders have a lot more work to do, and they're going to have to cut construction significantly more.

GERSH: And there is more pain lurking in the market. Prime mortgage rates are up more than half a percentage point in recent weeks. And many adjustable rate mortgages are due to reset in coming months. Seiders says builders are now watching interest rates like a hawk.

SEIDERS: All of a sudden, it occurs to you that rising interest rates could become part of this pattern. A lot of us expect the Fed to be easing policy somewhat in the later part of 2007. I think the Fed has made it pretty clear that they are not going to be dropping rates.

GERSH: Seiders says home builders hope solid job growth and decent income gains will provide a floor for the housing market, that is, assuming the market can find the bottom. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.