Housing Starts Fall To 17-Year Low In August

(RTTNews) - New residential construction fell by much more than expected in the month of August, according to a report released by the Department of Commerce on Wednesday, with housing starts falling to their lowest level in over seventeen years.

The report showed that housing starts fell 6.2 percent to an annual rate of 895,000 from the revised July estimate of 954,000. Economists had expected housing starts to fall to an annual rate of 950,000 from the 965,000 originally reported for the previous month.

With the bigger than expected decrease, housing starts fell to their lowest level since January of 1991. Additionally, housing starts are now down 33.1 percent compared to August of 2007.

Commenting on the data, Chris Low, Chief Economist at FTN Financial Group, said, "Homebuilders have thrown in the towel. Until sales recover, starts are on hold."

The decrease in housing starts reflected notable weakness in the Northeast and the Midwest, where housing starts fell by 14.5 percent and 13.6 percent, respectively. Housing starts in the South fell by a more modest 7.4 percent, while starts in the West increased by 10.8 percent.

Low added, "The brunt of the weakness was in Northeast multi-family, suggesting the change in NYC building codes inflated starts even more than we thought earlier this year."

The Commerce Department also said that building permits, an indicator of future housing demand, fell 8.9 percent to an annual rate of 854,000 from the revised July rate of 937,000. Building permits are subsequently down 36.4 percent year-over-year.

In other housing-related economic news, mortgage application volume jumped over 33 percent last week, soaring to its highest levels since early May. This came as people took advantage of low mortgage rates, sparking a wave of refinancing.

The Mortgage Bankers Association revealed that its market index of mortgage application volume climbed 33.4 percent on a seasonally adjusted basis for the week of September 12th. The Market Composite Index was 661.7 compared to 496.2 last week.

On an unadjusted basis the index shot up 65.3 percent from the Labor Day week and was down a mere 1.3 percent on a year over year basis.

"The drop in mortgage rates reflected the Treasury's announcement that Fannie Mae and Freddie Mae were placed under conservatorship of the Federal Housing Finance Agency," Orawin Velz, the MBA's associate vice president of economic forecasting, said in a statement.

"Renewed financial concerns should keep long-term Treasury yields low and translate to lower mortgage rates in the near term despite some widening in mortgage spreads," she added. "We expect to see meaningful increases in mortgage demand in coming weeks on both the purchase and refi sides."

The Refinance Index soared 88.1 percent to 2300.0 from last week's 1222.9. Accordingly, the MBA said 51.6 percent of mortgage activity took place through refinancing last week, up from 36.3 percent in the previous week.

The conventional and government purchase indices saw mixed results, with the conventional purchase index increasing 5.3 percent and the government purchase index, largely made up of FHA loans, decreasing 4.5 percent.

The adjustable-rate mortgage (ARM | Quote | Chart | News | PowerRating) share of activity ticked down to 4.0 from 6.4 percent of total applications from the previous week.

Interest rates for the 30-year fixed-rate mortgages decreased to 5.82 percent from 6.39 percent last week. Interest rates for 15-year fixed-rate mortgages also decreased to 5.54 percent from 5.73 percent in the previous week.

One-year ARMs also slipped, with their contrast interest rates hitting 6.95 percent compared to 7.00 percent last week.

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