New home construction report -- worse than it looks

A survey of builders released yesterday indicated that builder confidence in the new-home market in July hit a new low for the third-month in a row.

The National Association of Home Builders/Wells Fargo Housing Market Index in July dropped to the lowest level since the series measuring builder confidence began in 1985.

Today, a report on June housing starts seemed -- at first -- to make the builders seem like an overly pessimistic lot. U.S. housing starts surprised analysts by jumping 9.1% to an annual rate of 1.066 million in June.

But the Commerce Department made clear Thursday that the jump in permits and starts was caused by a change in the New York City's building code. Builders were rushing in June to apply for building permits before more strict construction codes were put in place.

So, it makes more sense to look at the single-family home construction data. Single-family housing starts in June dropped 5.3% and permits fell 3.5%.

Patrick Newport, U.S. Economist for Global Insight, said the figures are pretty dismal but not surprising. Single-family permits were falling by 5% a month six months ago. So a 3.5% drop is a bit of an improvement.

It will likely be some time before builders have something to cheer about. Newport points out that builders are having more problems financing projects with the tight credit market and the looming collapse of some regional banks.

"They will have problems getting credit to put up new homes and that may delay any recovery," Newport said. "The recovery could come late this year or early next year but it may be further out than that."

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