Housing Malaise Persists - TheStreet

Housing Malaise Persists

Housing starts tumble 19% in June. Meanwhile, Pulte is set to record the biggest impairment charges yet.
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Residential construction continues to slow down nationwide, and homebuilders are filing fewer applications for building permits because of the glut of homes already for sale.

New housing starts fell 19.4% in June from a year earlier to an annual rate of 1.467 million units, the Census Bureau said Wednesday. Economists expected 1.45 million starts, according to estimates from



Building permits, meanwhile, dropped 25.2% to 1.406 million units, below economists' average forecast of 1.49 million.

Sam Bullard, an economist at Wachovia, says the data may be a sign that housing starts are stabilizing. The annual starts level in June rose 2.3% from May.

"The pace of the fall seems to be moderating and potentially may be closer to the end than we think," Bullard says.

However, Bullard cautions that starts may continue to slide until later this year and maybe even into early 2008.

The drop in building permits is somewhat of a mixed message for homebuilder stocks like


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Pulte Homes

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Since housing inventory levels already remain high, fewer permits translates into less immediate new supply on the market. However, lower permits also mean slowing growth for the sector.

And of course, the latest data say nothing about housing prices. Builders in recent months have been forced to slash prices in order to move product, a move that is creating liquidity at the expense of profit margins.

As prices for houses decline, builders are being forced to record large land impairment charges related to unprofitable housing communities.

Pulte said

late Tuesday that it expects $740 million to $770 million of land impairment charges in the second quarter. That is the largest impairment reported by any builder thus far in the housing slowdown, and it represents an 8% reduction in Pulte's book value, according to a research note from Bank of America analyst Daniel Oppenheim.

Oppenheim said Pulte's forecast signals significant impairments from other builders reporting earnings next week.