Housing Starts Still Can't Get Started In These Troubled Times
Friday, October 17, 2008PAUL KANGAS: Last month was another dismal one for the housing industry. Construction of U.S. homes fell to a 17-year low. Housing starts plunged more than 6 percent from August and 31 percent from the same time a year ago. It's the lowest since January of 1991 according to the Commerce Department. As Stephanie Dhue reports, the worst may not be over.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Consumers continue to shy away from home purchases amid worries about the economy, tighter credit standards and increased down payment requirements. Rising foreclosures are adding more inventory to already glutted markets. National Association of Home Builders economist David Seiders says builders have limited choices.
DAVID SEIDERS, CHIEF ECONOMIST, NATIONAL ASSOCIATION OF HOME BUILDERS: The supply demand imbalance out there is quite serious and the sensible thing to do is to really cut back starts of new units. That's what we're seeing.
DHUE: With mortgage rates heading higher, the outlook for home sales continues to weaken. Economist Dean Baker expects home prices to fall an additional 10 to 15 percent nationwide, before stabilizing.
DEAN BAKER, CO-FOUNDER, CENTER FOR ECONOMIC & POLICY RESEARCH: Ideally, somewhere in the middle of '09, we can expect to see prices start to stabilize. The big question will be whether they overshoot on the downside and that's where it may be important for the government to take a role.
DHUE: The National Association of Home Builders wants Congress to stimulate home buying. The highly touted $7,500 tax break for first time home buyers that kicked in earlier this month has not provided much incentive, since buyers have to pay the money back.
SEIDERS: A good strong incentive for home buying, like a larger tax credit, maybe $10,000, maybe $15,000, not repayable to the Treasury, probably is enough to get a lot of people off the sidelines
DHUE: But Baker says not all markets are good buys. Home prices in cities like Boston, DC and New York as still high relative to rents. He suggests a targeted policy aimed at depressed areas like Detroit, Cleveland or Atlanta.
BAKER: There are markets that we would want to stabilize somewhere near current prices, there are other areas where it just makes no sense. I mean, it would be like trying to keep the NASDAQ at 5,000. It wouldn't have made sense and it would be crazy to try and have a government policy to do that.
DHUE: More ideas to stimulate the housing market are sure to be considered in the next few weeks as lawmakers put together a second stimulus package. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
