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August 26, 2009

Another False Green Shoot Exposed

by Brad Warbiany

Here in California, our state decided to offer a tax credit to buyers of new housing construction. Unsurprisingly, $10K in free money gave the housing market a bit of a kick in the pants, particularly new construction.

Now they’ve run out of money. And in a complete and utter coincidence, which nobody could possibly have predicted, new housing starts are drying up!

California Building Industry Association says the state’s homebuilders hit the brakes on starting new housing after the state’s $10,000 tax credit for buyers of new homes ended in early July. The state incentive had ignited a modest building and buying burst when it started in March.

According to July stats from the Construction Industry Research Board:

  1. Builders pulled permits for 3,011 total California housing units in July, down 14 percent from June.
  2. 2,045 California single-family permits, down 29% from June — that was the busiest month since July 2008.
  3. In Orange County, 62 homes were permitted in July — down 43% from June and off 69% from a year ago.

Says CBIA’s president, Robert Rivinius: “Our homebuilders reported a significant drop in traffic last month, largely due to the state closing the window on the homebuyer tax credit. Activity stopped as quickly as it started, which is bad news for housing and the broader economy.”

The recovery will be solid when economic gains are due to real fundamental improvement in the economy. Relying on the effects of government largesse as a sign of rebound, though, is not especially trustworthy.

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