Housing Market Takes Nose Dive in New Construction Starts

April 17, 2012 / Russell Legato, Residential Property Analyst

After three months of improvements in the U.S. housing market, new construction starts fell in April.  A popular gauge of builder confidence, the Wells Fargo index, reported a decrease from 28 to 25. Any number lower than 50 is supposed to indicate a lack of confidence. It was improving,  although numbers remained below 50 in March.

Housing Market Takes Nose Dive in New Construction Starts

Good signs of recovery are low mortgage loan interest rates and population increases that should create a need for more new homes. The problem lies in the large number of foreclosed properties that are on the market.  The progress may be stalled due to an expected influx of new foreclosures expected to occur.

Midwest builders had the worst decline with an index dropping 8 points in April. The Northeast region saw a 4 point increase. This was the best advance since May of 2010. The Southern states saw a decrease.

Another measure of economist’s confidence is the Bloomburg index. The group assessed the situation and came up with a record low of 8 in January of 2009. Single-family houses had dropped to 26 after a March number of 29. In addition, fewer potential buyers toured available properties in April.

One leader in the real estate industry claims the pause is due to the people who viewed homes in the first quarter, taking their time in making a decision to buy. There are other factors affecting the recovery. However, it is likely that if mortgage rates begin to increase decisions will be made faster.

Another factor is the difficulty in getting mortgage approval as compared to before the recession. The norm is great credit rating along with a 20 percent down payment. Not everyone can meet these exacting standards.

Another school of thought is that those who wait too long will miss out on the low mortgage rates and lowered asking prices in the current housing market. The only certainty is that right now those two favorable conditions are still firmly in effect. Some may take advantage while others cannot qualify for a mortgage. Still others may miss the boat of their own volition.

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