Housing Market Continues to Cool

March 16, 2006 — -- The government says builders broke ground on new homes at a significantly reduced level during February, the latest sign that the air is slipping out of the housing bubble.

The release from the Department of Commerce shows that new-home construction ran at an annual rate of 2.12 million units, about 7.9 percent below January's estimate of 2.3 million units. This is close to what economists were expecting.

Applications for building permits fell as well, dipping 3.2 percent from January's rate. Building permits are a good indication of future building activity.

Rising inventories of homes for sale and less interest from "investor buyers" in some markets are making home builders ratchet back their construction activities.

"Rising interest rates and high rates of home-price appreciation have raised the bar for homeownership to beyond what some families can reach," said National Association of Home Builders economist David Seiders in a prepared statement. "Meanwhile, a retreat of short-term investors from certain markets is helping restore equilibrium between supply and demand."

The report reinforces the validity of a cooling housing market. Bubble talk is more of a local phenomenon than a national concern at this point. The home builders association suggests that there will be an orderly cooling process to the slowdown, not a dramatic crash.