U.S. housing starts fell more than expected in May to their lowest level in five months, a government report showed on Wednesday, as a popular homebuyer tax credit that had buoyed construction activity over the past two months expired.
The Commerce Department said housing starts dropped 10 percent to a seasonally adjusted annual rate of 593,000 units, the lowest level since December. The percentage decline was the biggest in 14 months. April's housing starts were revised down to show a 3.9 percent increase, which was previously reported as a 5.8 percent rise.
Analysts polled by Reuters had expected housing starts to fall to 650,000 units. Compared to May last year, starts were up 7.8 percent.
New building permits, which give a sense of future home construction, dropped 5.9 percent to a 574,000-unit pace in May, the lowest in a year. That followed a 10.9 percent drop in April and compared to analysts' forecasts for a rise to 630,000 units.
In other words, the housing market in many parts of the country is still dismal, and the glut of housing that people can't afford is still high. People are building new houses and they are sitting there. The prices will have to come down, because the houses people are living in can't be sold at the price they were at even two or three years ago. Classic liquidity trap situation. nearly all of the wealth your average American homeowner has is tied up in the worth of their home, and that has dropped some 25% or more in some places.
It will continue to drop. Housing starts have to continue to plummet to work out the housing glut. Problem is, that puts homebuilders out of business. The tax credit helped some, but now that it's gone, the game is pretty much up. 2010 will continue to be a miserable year.
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