US housing starts

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Some things just cannot be wished away. Like tattoos and bitter family feuds, the US housing market is still there, stubbornly refusing to improve. The Commerce Department on Tuesday released figures on the state of US residential construction. Based on survey data, new housing starts in April appear to have dropped to an annual rate of 458,000 – the lowest level since records began in 1959. Construction activity is now four-fifths below the peak of the building frenzy in early 2006. The trend has defeated every previous effort to call a bottom in the market.

The US, with a growing population, cannot stop building houses, and the rate of construction is now below that of household formation. But this long-term demand need not translate into an improved outlook for the housing market any time soon. The stock of homes available for sale, according to the National Association of Realtors, stands at 3.7m, equivalent to 10 months’ supply given current sales. And that figure does not include shadow inventory – homes foreclosed on by banks but not yet made available for sale, either to avoid further depressing prices or to postpone recognition of the loss.

Meanwhile, foreclosures are still rising – up by 32 per cent year on year in April, according to RealtyTrac – and will continue to do so while the ranks of the unemployed swell. That, in turn, puts further pressure on house prices, which means more losses for the banks, and greater difficulty when it comes to expanding consumer lending. So consumer spending will continue to suffer at the cost of more jobs. The housing market has moved beyond a cyclical swing from boom to bust into a fundamental cycle of negative feedback that weighs on the whole economy.

This downturn has not yet run its course.

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