The lack of builder confidence in current and near-term conditions reported yesterday by the NAHB/Wells Fargo Housing Market Index (HMI) was illustrated in concrete terms today with the release of starts and permits data that show an industry will little hope for the near future.

According to the Census Bureau and HUD, privately owned housing starts fell in April to a seasonally adjusted annual rate of 523,000, less than half the 1.2 million unit rate economists consider healthy. The rate is 23.9% lower than where it stood the year before.

And, as reflected in the NAHB’s HMI, feelings about the near future are better, but just barely and remain low. Permits pulled in April for privately owned housing units fell 4.0% from March and dropped 12.8% from the previous year to an annual rate of 551,000.

With 1.9 million foreclosures currently on the market—more than twice the pre-bust level of 800,000—and another 3.7 million homes with seriously delinquent mortgages waiting in the wings, builders have good reason to be cautious.

As foreclosures have continued to push home prices downward, it has become increasingly difficult for new homes to compete, particularly with distressed properties—many of which are only a few years old and may never have been lived in. A comparison between the Census Bureau’s new-home sales numbers over the past year with National Association of Realtors data on existing-home sales show that new-home sales as a percentage of total home sales has been declining, falling from 6.68% of total sales in March 2010 to 5.56% in March 2011.

Patrick Newport, U.S. economist at IHS Global Insight, pointed out in an interview with Builder that it’s still unclear as to whether it is foreclosures or the lack of available financing that is the dominant factor.

“My gut is telling me that the key factor is the falling housing prices, which are related to the foreclosures,” he said. “The builders just can’t build for a profit.”

But the trouble builders are experiencing obtaining financing is also related to foreclosures pushing prices down, he adds, since falling values force lenders to enforce tighter lending standards in expectation that the investment is going to depreciate.

Claire Easley is senior editor, online, at Builder.

Learn more about markets featured in this article: Greenville, SC.