Subsidies end and housing starts plunge even more than expected

06/16/2010 9:38 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

 Hard to find a silver lining in this data.

Housing starts in May fell to a 593,000 annual rate, according to numbers released this morning, June 16, by the Department of Commerce. That was a 10% drop from April’s annual rate of 659,000. The April rate itself was revised downward from 672,000. The drop was the biggest since March 2009.

Building permits, an indicator of future housing starts, fell to an annual rate of 574,000. That’s a one-year low.

 Economists had been expecting that housing starts and building permits would both fall because government subsidies to home buyers expired at the end of April. Under the program home buyers had to sign a contract by the end of that month to qualify for a credit of up to $8,000.

 But they hadn’t expected starts and permits to fall quite this sharply.

 The median estimate among 78 economists survey by Bloomberg News was for housing starts to drop to a 648,000 annual rate. The rate actually came in 55,000 or 8.5%, lower.

 I’d expect that we’ll now see inventories of new homes for sale start to climb again. Sales of new homes had climbed in April reducing the number of new homes on the market to the lowest level since 1968.

 Of course, the current inventory is so low because builders had been cutting back on construction as demand remained sluggish in good months or actually fell.

 I don’t think this data will make the stock market happy today.

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