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Builders are breaking ground on fewer properties now that a key housing stimulus has been pulled from the market.
Housing starts fell 10 percent in May from April but remain 8 percent above year-earlier levels, the
"The weakness in housing starts today was driven entirely by single family starts, which fell...17.2%, to 468,000 from 565,000, completely reversing the 5.6% gain in April," Theresa Chen of
Housing starts had increased in March and April, as builders ramped up production to meet anticipated demand tied to a federal tax perk. Uncle Sam had been offering tax credits worth up to $8,000 to home buyers who signed a sales contract by
"These data support the notion that the home-buyers tax credits have provided an artificial prop to...home-building and appears to have resulted in an inter-temporal shift in activity that has concentrated building in the recent past at the expense of the next few months," David Resler, the chief economist at
What's more, Wednesday's report indicates that construction will weaken further from here, as permits to build single-family homes fell 10 percent in May from April. "The second successive monthly decline in single-family housing permits in May indicates that the payback has further to run first," Nigel Gault, the chief U.S. economist at IHS Global Insight, said in a report.
Brian Wesbury, the chief economist at
The economy needs to add jobs to facilitate a housing recovery, Gault argues. "Interest rates and house prices are both low, but credit remains tight and there's still an over-supply of homes on the market," he said. "We think that rising employment will lead to a gradual improvement in housing activity over the second half of the year."