Housing Starts and Building Permits Plunge to Lowest Levels in Three Years

Yes, first-time home buyers are entering the market and applying for Florida home loans. And, yes, the reduction in interest rates has led to an influx of mortgage applications. Nevertheless, evidence continues to mount that the industry is experiencing a slow down.

The latest sign? Home builders pulled back significantly in August, as starts on new houses sank to their lowest level in more than three years, while a drop in permits signaled more weakness ahead for the real estate sector.

Housing starts sank to an annual rate of 1.67 million last month from July’s 1.77 million pace, the Census Bureau reported Tuesday. This marked a six percent decline from July and a nearly 20 percent drop from a year earlier.

Florida home mortgage demand still not enough

Applications are on the rise, as more and more hopeful owners jump on low prices by making an offer with a Florida home mortgage. Still, the situation isn’t turned around yet.

Building permits, which are seen as a reading of builders’ confidence in the market, fell to a 1.72 million annual rate in August from a downwardly revised 1.76 million in July. Economists had forecast permits would slow to a 1.75 million pace in August.

Economists said that as weak as housing starts and permits were in August, it’s likely they will both continue to fall in future months.

“Until we see a recovery in housing permits, it is unlikely that we have seen the bottom,” said Phillip Neuhart, an economist with Wachovia.

The one piece of good news for the housing market from Tuesday’s report is it suggests that the supply of new homes on the market could start to narrow because builders are pulling back so sharply. This would relieve pressure on Florida home prices.

“Thank goodness the builders are cutting back on their additions to supply; it’s an absolutely essential adjustment at this point,” said David Seiders, chief economist with the builders’ trade group.

Seiders said his estimates are that the “normal” level of housing starts given current factors, such as population growth and job creation, suggest there should be about just under 1.9 million housing starts a year.

The building boom of 2004 and 2005, topped with last year’s record 2.07 million starts, has left the market with an oversupply that could take years to work through, however. This is why the ball is in the court of the buyer, has those seeking a Florida home loan possess more leverage than ever before.