Coronaviru­s ham­mers US home­build­ing

Kuwait Times - - Business -

WASH­ING­TON: US home­build­ing dropped by the most on record in April and per­mits for fu­ture con­struc­tion tum­bled, un­der­lin­ing fears that the coronaviru­s cri­sis would lead to the deep­est eco­nomic con­trac­tion in the se­cond quar­ter since the Great De­pres­sion. The report from the Com­merce Depart­ment on Tues­day added to dis­mal data this month show­ing a stag­ger­ing loss of 20.5 mil­lion jobs. In ad­di­tion to a col­lapse in re­tail sales and man­u­fac­tur­ing pro­duc­tion, the data sug­gests that April was prob­a­bly the worst month so far in the cur­rent eco­nomic down­turn. “This is an un­prece­dented re­ces­sion in that it hap­pened over just two months and this is mak­ing it harder for com­pa­nies and con­sumers to get their bear­ings and fig­ure out what to do next,” said Chris Rup­key, chief econ­o­mist at MUFG in New York.

Hous­ing starts tum­bled 30.2 per­cent to a sea­son­ally ad­justed an­nual rate of 891,000 units last month, the low­est level since early 2015. The per­cent­age de­cline was the big­gest since the gov­ern­ment started track­ing the series in 1959. Starts dropped 18.6 per­cent in March. Econ­o­mists polled by Reuters had forecast hous­ing starts would fall to a pace of 927,000 units in April. Home­build­ing fell in all four re­gions last month. Hous­ing starts plunged 29.7 per­cent on a year-onyear ba­sis in April.

Though many states con­sid­ered home­build­ing as es­sen­tial when they en­forced lock­down or­ders in mid-March to curb the spread of COVID-19, the res­pi­ra­tory ill­ness caused by the coronaviru­s, dis­rup­tions to build­ing ma­te­rial sup­ply chains likely weighed on ac­tiv­ity in the last cou­ple of months.

As the coun­try grad­u­ally re­opens, there are in­di­ca­tions the worst of the home­build­ing slump is likely over. A sur­vey on Mon­day showed an in­crease in

home­builder con­fi­dence in May. With at least 21.4 mil­lion people hav­ing lost their jobs in March and April, how­ever, the hous­ing mar­ket could re­main sub­dued for a while even with mortgage rates near record lows. “Fewer people are go­ing to be in­ter­ested in buy­ing a home and com­mit­ting them­selves to years of mortgage pay­ments when they are con­cerned about their job and in­come prospects,” said Mark Vit­ner, a se­nior econ­o­mist at Wells Fargo Se­cu­ri­ties in Char­lotte, North Carolina.

The dol­lar was trad­ing lower against a bas­ket of cur­ren­cies, while US Trea­sury prices were mostly higher. Stocks on Wall Street were mixed after post­ing hefty gains on Mon­day amid hopes for a vac­cine for COVID-19.

Record con­trac­tion ex­pected

Per­mits for fu­ture home con­struc­tion plunged 20.8 per­cent to a rate of 1.074 mil­lion units in April, the low­est level since Jan­uary 2015. The de­spite the sharp drop, per­mits are out­pac­ing starts, which bodes well for home­build­ing in the com­ing months. The hous­ing mar­ket was back on the re­cov­ery path be­fore the coronaviru­s pan­demic struck, after hit­ting a soft patch that started in the first quar­ter of 2018 and lasted through the se­cond quar­ter of 2019. The sec­tor, which has a big­ger foot­print on the econ­omy, was partly stymied by a chronic short­age of prop­er­ties for sale. It has ex­panded for three straight quar­ters. But as with ev­ery other seg­ment of the econ­omy, econ­o­mists are ex­pect­ing a steep hous­ing mar­ket con­trac­tion in the se­cond quar­ter.

Econ­o­mists are es­ti­mat­ing that gross do­mes­tic prod­uct (GDP) will shrink at as much as a 43 per­cent an­nu­al­ized rate in the se­cond quar­ter, the deep­est since the 1930s. The econ­omy con­tracted at a 4.8 per­cent pace in the Jan­uary-March quar­ter. Sin­gle-fam­ily home­build­ing, which ac­counts for the largest share of the hous­ing mar­ket, dropped 25.4 per­cent to a rate of 650,000 units in April, the low­est level since March 2015. Sin­gle-fam­ily build­ing per­mits de­clined 24.3 per­cent to a rate of 669,000 units, also the low­est since March 2015.—Reuters

A res­i­den­tial build­ing con­struc­tion site is seen, amid the out­break of the coronaviru­s dis­ease (COVID-19), in Detroit, Michi­gan.—Reuters

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