Stateside housing starts fall 10pc as key tax breaks expire
US house-building fell faster than expected last month, as tax breaks designed to encourage construction expired.
Housing starts fell 10pc to a 593,000 annual rate, the biggest decline since March 2009, and the April estimate was revised down to 659,000 by the Commerce Department.
Building permits, which indicate future construction, unexpectedly declined to a one-year low, with starts on single-family home starts suffering the biggest drop since 1991.
The figure compares with a peak annual rate of around two million new starts in 2005. Last month's fall followed the expiry of a government incentive of up to $8,000 (€6,700) which required contracts be signed by April 30 and closed by the end of this month.
Builders are concentrating on completing projects before the June closing deadline and are less focused on starting new projects, analysts say.
"Builders are obviously feeling very cautious, justifiably cautious," said Robert Dye, a senior economist at PNC Financial Services in Pittsburgh. Home construction in the third quarter was going to be weak and would be a drag on the economy, he said.
"This fall was to be expected, but it was greater than expected," said Gabriel Stein of Lombard Street Research in London. "Nor do forward-looking indicators hold out much hope of any sustained recovery in housing market activity this year. The housing market slump which began in 2005 still has a long way to go."
There was better news elsewhere in the US economy, with industrial production rising at the fastest pace since last August. Another report yesterday showed producer prices fell last month, giving the Federal Reserve scope to keep interest rates near zero, as less government spending and the European debt crisis threaten growth.
"We continue to have an economic expansion that's moderate overall, and uneven," said Richard DeKaser, chief economist at Woodley Park Research in Washington. "Clearly, the factory sector is helping to offset the weakness in the housing market."
The European debt crisis has prompted economists to trim US inflation forecasts on increased prospects for weaker global growth and a strengthening dollar. With about 25pc of US plant space idle, and unemployment hovering around 10pc, companies have little ability to raise prices.
"Slack in the labour force and excess capacity continue to keep inflationary pressure in check," Lindsey Piegza, an economist at FTN Financial in New York, said in a note to clients.
"Deflationary pressures continue to temper expectations of a near-term change in interest-rate policy." (Additional reporting by Bloomberg)