Tuesday, September 21, 2010

Home Construction up 4% in August, But Stormy Skies Still Ahead

By Mark J. Donovan

Though not a grand slam, seeing single family home construction increase 4% in August over the previous month was a welcome sign. Apartments and condominiums also shot up a whopping 32% during the same timeframe. This said new home construction starts are still down 78% from their peak in January of 2006.

Though this news was encouraging I am still not optimistic that the housing market is on a clear path to prosperous times again. With unemployment ticking up to 9.6% officially and slated to go even higher before year end, its unimaginable that sustained improvement in home construction starts will continue unabated. In addition, with so much uncertainty in the national politics, massive tax increases kicking in January for everyone, and expected large health insurance premium increases starting soon, it’s hard to believe that there is smooth sailing ahead in the home construction industry. On top of these harsh realities there are still many prospective home buyers waiting and hoping on the sidelines for even lower house prices. Couple all of these facts with a high inventory of existing homes on the market and increasing foreclosures and the prospects of a sustained improvement in the home construction business seems highly unlikely.

It appears builders feel the same way about the home construction market prospects. The National Association of Home Builders (NAHB) also reported its monthly index of builders’ sentiment in September, and it remained unchanged at 13. This is the second month that it has been at this level, the lowest since March of 2009.

Until there is a change in the national politics, less uncertainty with out-of-pocket expenses, and more income into the savings accounts of the average homebuyer, the home construction business is likely to stay in the doldrums for the foreseeable future, regardless of this positive blip of news.

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