Housing Starts Fall, Few Surprised

The U.S. Department of Commerce reported on Wednesday and residential construction starts dropped in May to their lowest level in a year. The overall decline was 10 percent compared with April, to an annualized rate of 593,000, with single-family starts down 17.2 percent, while multifamily starts, which are notoriously volatile month-to-month, were up 38.3 percent.

June 17, 2010
By Dees Stribling, Contributing Editor

Courtesy Flickr Creative Commons user Steve Snodgrass

The U.S. Department of Commerce reported on Wednesday and residential construction starts dropped in May to their lowest level in a year. The overall decline was 10 percent compared with April, to an annualized rate of 593,000, with single-family starts down 17.2 percent, while multifamily starts, which are notoriously volatile month-to-month, were up 38.3 percent.

The federal tax credit for homebuyers, the peg holding up the residential construction market, was knocked away at the end of April, so everyone was expecting a drop, though the size of the drop did take some more optimistic economists by surprise. Applications for residential building permits also shrank by 5.9 percent in May to an annualized rate of 574,000. That too is the lowest rate in a year, according to Commerce.

Still, single-family home starts in May 2010 were up 15.3 percent when compared with May 2009. Multifamily starts, on the other hand, saw a drop of 17 percent this May when compared with the same month a year ago.

CRE Mortgage Delinquencies Still Headed Up

The Mortgage Bankers Association said on Wednesday that commercial real estate mortgage delinquencies for various kinds of loan structures continued on their upward path in the first quarter of 2010. For example, between the 4Q09 and 1Q10, the 30-plus day delinquency rate on loans held in CMBS rose 1.54 percentage points to 7.24 percent. In the past year, these 30-plus day CMBS delinquencies have rising from 1.86 percent to their current level–nearly 5.5 percentage points.

“Weakness in the economy has continued to weigh on commercial properties, which in turn weighs on the mortgages they back,” Jamie Woodwell, MBA’s vice president of commercial real estate research, said in a statement. “Economic growth, specifically in areas of jobs and consumer spending, will be key to stabilizing the commercial property and mortgage markets going forward,” he also said, in case anyone missed that point.

Other unfortunate trends in mortgage delinquencies, according to MBA, include the fact that 60-plus day delinquency rate on loans held in life company portfolios increased 0.12 percentage points to 0.31 percent, while the 60-plus day delinquency rate on multifamily loans held or insured by Fannie Mae rose 0.16 percentage points to 0.79 percent. The 60-plus day delinquency rate on multifamily loans held or insured by Freddie Mac increased 0.05 percentage points to 0.24 percent, and the 90-plus day delinquency rate on loans held by FDIC-insured banks and thrifts rose 0.32 percentage points to 4.24 percent.

U.S. Cries Fraud

Those who remember the S&L crisis of the late 1980s might be wondering, where’s all the financial-industry fraud this time around (besides Bernie Madoff)? The U.S. Department of Justice had a partial answer on Wednesday when it accused Lee Farkas, former CEO of Taylor, Bean & Whitaker, of committing a $1.9 billion fraud against investors and the federal government. His company used to be one of the country’s largest non-bank owned home loan providers.

A federal grand jury has indicted Farkas on 16 complicated counts of fraud. In essence, the government says that Farkas, his company and Colonial BancGroup hid losses, sold fake mortgage assets and lied to regulators, ultimately leading to the bank’s collapse and a lot of losses for investors and various federal agencies. The Securities and Exchange Commission has also filed separate civil charges against him.

Wall Street wobbled around on Wednesday, producing an unusual mixture of results by the end of the day. The Dow Jones Industrial Average edged up 4.69 points, or 0.05 percent. The S&P 500 lost a scant 0.06 percent. And the Nasdaq ended up exactly where it started, breaking even for the day.