Transcripts

New Home Sales Are Up But That's Not Necessarily A Good Thing

SUSIE GHARIB: Some surprising news today from the struggling U.S. housing market. Construction of new homes increased by a strong 8.2 percent in April. But the new building was mostly in multifamily units, not single-family homes, where construction is at a 17- year low. And as Suzanne Pratt reports, most experts say the worst is probably not over for the housing market.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: There are signs of life in the U.S. housing market. Builders broke ground on thousands of new apartments, condominiums and townhouses in April. But only multifamily dwellings experienced activity last month, with a 36 percent jump in new units. That followed a big decline the previous month. Construction in the larger and less volatile single-family sector fell 1.7 percent. And experts say building of single family homes is a better indicator of the health of the housing sector, which is experiencing the worst downturn in decades. Oppenheimer funds economist Brian Levitt says today's data does not suggest a turnaround in the housing market.

BRIAN LEVITT, ECONOMIST, OPPENHEIMER FUNDS: The U.S. housing market continues to be very sluggish. It continues to be a drag on the U.S. economy and it's going to be for a considerable time. You don't take away two million homes in inventories in a single day.

PRATT: Some consider a pickup in construction of multi-unit dwellings to be good news for the economy because it may mean more jobs and increased business activity. In addition, total permits for new construction of all dwellings increased nearly 5 percent in April, suggesting homebuilding may pick up in the future. But UBS economist Jim O'Sullivan says additional new building is bad news for the housing market, which is currently coping with a massive 11-month supply of unsold homes.

JIM O'SULLIVAN, SR. US ECONOMIST, UBS: We've the highest level of inventories of unsold homes on record. So, really, what we need now is fewer houses to stop the rate of decline in home prices, which is obviously causing such turmoil in financial markets.

PRATT: Experts point out that housing cycles are very long. While some believe we could see a bottom sometime next year, others don't expect to see a turnaround until at least 2010. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.