Tax Credit Effect: Housing Starts Surge, But Permits Dive

Housing constructionHousing starts registered a bigger-than-expected jump in April – the highest level in 18 months – but construction permits saw a big drop and that may signal a summer dip in activity for the fragile housing market.
The April figures from the Commerce Department reflect somewhat on the impact of the homebuyer tax credits, which offered up to $8,000 but expired April 30. The program fueled a rebound in home sales through March and last month, after a lackluster first two months of the year.
New home construction starts in April were at a seasonally adjusted 672,000 units, a 5.8 percent increase over the revised March estimate of 635,000 units – and 40.9 percent over the April 2009 rate of 477,000 units.
However, building permits for new housing construction – a harbinger of construction starts to come – were at 606,000 in April, an 11.5 percent drop below the revised March rate of 685,000.
Permits in April were at their lowest level in 6 months.
Home builders, though, are becoming more positive in their outlook on the market’s rebound, despite the expiration of the tax credits.
Confidence among residential home builders rose for a second consecutive month in May to its highest level in more than two years, according to the National Association of Home Builders/Wells Fargo Housing Market Index.
The index jumped three points to 22 in May, its highest point since August of 2007.
Builders are hopeful that momentum from the homebuyer tax credits that expired April 30 will carry over into the coming months.
 “This means builders are more comfortable that the market is truly beginning to recover, and that positive factors for buying a new home – low interest rates, great selection, stabilizing prices, and a recovering job market – are taking the place of  tax incentives to generate buyer demand,” said NAHB Chief Economist David Crowe
But Crowe also said that improved confidence has surged from the depths of the housing downturn and it is “still quite low by historic standards.”

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