April slowing in housing starts is bad news but not a surprise

05/17/2011 6:39 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

I’m seeing headlines calling the 11% drop in housing starts announced this morning (May 17) in April from March “surprising,” but I don’t see why. Flooding and tornadoes in the South shut down construction sites in a big swath of states this spring. (April 2011 was the 10th wettest April since the start of records in 1895. The 875 tornadoes reported in the month are a record.) Housing starts in the south fell 23% from March levels.

But whether you’re surprised or not, there’s no doubt that the housing industry continues to struggle two years after the current economic recovery started. Housing starts in April came in at a 523,000 annual rate. That’s 11% below the annualized rate for March and considerably short of the 569,000 rate forecast by economists, according to Bloomberg.

There’s no quick turnaround in the cards either. Building permits, a number that forecasts future housing starts, fell 4% from March to an annualized rate of 551,000. Economists had projected a pickup of 0.9% to an annualized 590,000.

As you might expect the bad news on housing starts has been bad news for housing-related commodities today, May 17. Copper futures for July were down 0.25% as of 12:07 New York time. Lumber futures were down 3.27%.

The next important housing numbers come out on May 19. Economists are projecting that sales of existing homes, which make up more than 90% of the market, will climb 2% in April to an annual rate of 5.2 million. Officially there are 3.5 million existing homes on the market but estimates for CoreLogic say another 1.8 million houses are delinquent or in foreclosure as of March.

That’s a lot of inventory to move.

Last week homebuilder D.R. Horton projected that demand for new houses will stay weak into 2012.

 

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