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GDP Report Reveals a Worrisome Fact About the Housing Industry

Stocks in this article: TOL KBH DHI

NEW YORK (TheStreet) -- The advance estimate of first-quarter 2014 gross domestic product released Wednesday revealed a troubling statistic about the housing industry.

Simply, people aren't buying homes.

Real residential fixed investment -- which is a complex phrase to describe permanent site construction and home repairs and broker commissions -- dropped 5.7% in the report, marking the second consecutive quarter of declines. The same number tumbled 7.9% during the fourth quarter of 2013.

Real residential fixed investment breaks down into two categories: Permanent site construction and "other," which includes home repairs and broker commissions.

The good news is that permanent site construction climbed some 11% in the first quarter, but the "other" category tumbled 16%, said Capital Economics chief U.S. economist Paul Ashworth.

"Actual home building growth has slowed a bit but it hasn't collapsed," Ashworth said in a telephone interview from Toronto. "So the big decline is basically because home sales have dropped off, [and] that's generating a decline in residential investment."

This report supported last week's existing home sales data for March, which showed sales dropped month-over-month and year-over-year. Economists said a rapid rise in prices (the Case-Shiller home price index reported prices across 20 U.S. regions rose the past month and against last year) coupled with last summer's pop in mortgage rates have sidelined many consumers from purchasing homes.

Ashworth said the extremely cold weather during the first three months of 2014 also has hurt purchasing of existing homes.

For all the worse-than-anticipated housing data out the past two weeks, Ashworth said he expects housing to bounce back in the spring, adding that to contribute to economic growth home buying doesn't have to return to last year's levels, the sector simply must show upward momentum.

>>Read More: ADP, GDP Reports Reveal What's Wrong With the Economy

>>Also: Stocks Waver Amid Disappointing Economic Data

-- Written by Joe Deaux in New York.

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