The housing market suffered a huge blow in February with the lowest number of new houses built since 1984. The new figures released by the Commerce Department on Wednesday show the market is still struggling to get back on its feet despite attempts to correct previous mortgage missteps.
February New Construction Drops 22.5 Percent
The new figures from the Commerce Department show housing starts (construction on a new housing unit, such as an apartment, house, mobile home or group of homes) dropped last month to an annual rate of 479,000 units. This represents a 22.5 percent drop from January and is just above a record low that was set in April 2009.
Economists had estimated a much higher number for February–around 570,000 units for the month. With new construction so low for February, the state of the economy and housing market are taking the blame for the decline.
Unsold Inventory and Foreclosures Blamed for Low Housing Starts
The report explained that one key reason why housing construction was so low in February was the vast backlog of unsold inventory waiting to be sold. Many consumers are still without work and simply cannot afford to take on a mortgage loan that often carries a 30-year financial commitment.
However, possibly the biggest reason new construction has declined is the massive number of foreclosures that continue each month. Foreclosures reached a record-high 2.9 million in 2010 and homeowners continue to have their houses repossessed each month.
With previously constructed homes entering the market in droves, there’s not much incentive for new homes to sell, especially since many repossessed homes come at discounted rates. Further, with robo-signing issues of months past promising that more repossessed homes will reenter the market in the coming months, housing starts could remain lower than expected for some time.
