By Mike Caggeso
Associate Editor
Money Morning
U.S. housing starts and permits unexpectedly plummeted to record lows in April, torpedoing hopes of a housing market recovery as well as hopes the overall economy is regaining traction.
Starts for privately owned homes clocked in at a 458,000 annual rate, a 12.8% decline from March's revised rate of 525,000 and a 54.2% dive from April 2008's annual rate of 1,001,000 starts, according to a report from the U.S. Department of Commerce.
Meanwhile, building permits for privately owned housing units were applied for at a seasonally adjusted annual rate of 494,000, 3.3% below March's revised rate of 511,000 and a 50.2% plummet from April 2008's revised rate of 991,000.
The Commerce Department report also sheds light on the complexity of the housing market's fallout and path to recovery.
Most strikingly, while starts in the West have dropped 52.9% from last year, they actually rose 42.5% from March 2009. The Northeast, Midwest and South all posted double-digit monthly declines and steeper annual losses.
Also, the drop in building permits isn't necessarily a bad thing, says Peter Kenny, managing director at Knight Equity Markets. Like the retail sector's recovery, the first step for the ailing housing market is getting rid of all the houses already on the market, he said.
"There is so much inventory on the market that the sooner we stop building and start eating into existing inventory the better off we'll be," Kenny told Reuters.
For the short term, April's housing figures won't help the country's top home-repair retailers, The Home Depot Inc. (NYSE: HD) and Lowe's Cos. Inc. (NYSE: LOW).
Each company posted quarterly earnings that beat analysts' forecasts, but not because they've been blessed by a return of consumer demand.
Rather, the retailers discounted items and cut costs across the board.
Earlier this year, Home Depot announced plans to cut 7,000 jobs, freeze officers' salaries and close some specialty outlets - moves that shed 16.4% from operating costs, Reuters reported.
In April alone, building-material and garden-supply stores, shed 7,500 jobs, according to the U.S. Department of Labor.
The moves have clearly been effective, but also entwined with a bitter irony.
And as long as unemployment continues climbing, there won't be a consumer base for every element for the housing market, including the merchandise on their shelves.
News and Related Story Links:
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U.S. Department of Commerce:
New Residential Construction in April 2009
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Wall Street Journal:
US Retail Industry Has Record Unemployment As Cuts Continue