New Construction Bumps Up, but Sub-Prime Worries Linger

May 19, 2008 10:27 AM
by Cara McDonough
After the lowest slump in almost two decades, construction of new homes rose in April, but analysts say the future is still far from rosy.

30-Second Summary

The U.S. Commerce Department reported on May 16 that new house construction rose 8.2 percent in April. There was also a big jump in apartment construction.

The gain is a much-needed step toward recovery in the home-building industry, which slumped in March to its lowest level in 17 years, according to Martin Crutsinger, an Associated Press economics reporter writing in USA Today.

The recent rebound could be temporary, but at least offers some reprieve from the barrage of bad news over recent months. “We can’t say we’ve hit a bottom, but it’s better than what we’ve seen,” says George Adell, a fixed-income strategist with Commerce Capital Markets in Jupiter, Fla.

Still, continued weaknesses in the single-family home market mean the market will likely need more than a bump upward in construction to get back on track. In April, the International Monetary Fund placed much of the blame for the global economic crisis on the slowdown of the American economy—specifically, the sub-prime mortgage crisis. The report suggested that the broader impact of the American housing crisis could eventually cost the world economy about $945 billion.

David Wyss, an economist at Standard & Poor’s, said he was not impressed with the rise in new construction compared to the scope of the crisis overall, reports Forbes. “These numbers look decent relative to our reduced expectations, but we’re at half the level we were running just a few years ago,” he said.

Headline Link: ‘Housing Starts Up 8.2%, Biggest Gain in 2 Years’

Opinion & Analysis: Sub-prime borrowers still reeling

Related Topics: Sub-prime crisis draws comparison to Depression era

Background: How the crisis started, and a look at “liar’s loans”

The crisis goes global

Reference: Economic downturn explained graphically


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