The Wall Street Journal provides more proof that the $8,000 Housing Tax Credit worked:
The housing-market boost driven by government home-buyer tax credits has faded, damping builders’ incentives to construct new homes in May. Meanwhile, U.S. industrial production strengthened as a key inflation indicator remained tame in the face of a sluggish recovery. U.S. housing starts plunged by 10% to a seasonally adjusted annual rate of 593,000 in May, the month after the government ended its home-buyer tax credit.
Single-family housing starts slid 17.2% to an annual rate of 468,000, the lowest level in a year. Permits for new construction also declined, the Commerce Department said. “The plunge in housing starts in May underlines that a sustained housing rebound has yet to get under way,” said Nigel Gault, chief U.S. economist for IHS Global Insight. “Now the credit is gone, it’s time for the payback.”
The decrease in May starts confirmed fears that a fitful recovery could falter with the April 30 end of a tax credit created early last year for first-time home buyers. The tax relief spurred sales and construction. Even though prices and mortgage rates are low, the job market is weak. “Starts should be soaring at this point of the business cycle,” said Ken Mayland, president of ClearView Economics.
But builders are having trouble getting financing, and many buyers are looking to existing homes instead of new homes. Existing homes are cheaper than newly built homes—even more so with the foreclosures that drove down prices. Builders are also cautious about a surplus of unsold homes, including a so-called shadow inventory made up of property withheld from the market because of low prices. When prices climb enough, that inventory will flow into the market.
Still, even though single-family housing starts dropped sharply in May, apartment construction rose. Apartment construction—housing with two or more units—rose 33% to an annual rate of 125,000. Within that multifamily category, groundbreakings of homes with five or more units were up by 38.3%.
