Wikinvest Wire

Housing starts plunge

Friday, October 17, 2008

A short time ago, the Census Bureau released the September data for new home construction and, as might be expected given the recent financial crisis, the news wasn't good.
IMAGEAnother change of scale was required in the chart above to open up the 800,000 to 1,000,000 range (annualized) which, with the exception of the 1991 recession, is an area that hasn't been visited since the 1980s.

After precipitous declines in both July and August, housing starts and permits for new construction dropped to multi-decade lows in September.

How low?

  • Housing starts fell 6.3 percent to the lowest level since 1991
  • Single family home starts fell 12.0 percent to the lowest level since 1982
  • Permits for new construction fell 8.3 percent to the lowest level since 1981
On a year-over-year basis, housing starts are now down 31.1 percent paced by a decline of 40.4 percent in the West and 32.5 percent in the South.

Permits are down 38.4 percent from year ago levels, led by a decline of 44.4 percent in the West and 37 percent declines in the South and Midwest.

Builders are cutting back on construction at a rapid pace in an effort to help clear their unsold inventory, however, the glut of foreclosures that continues to come onto the market has made these efforts futile as distressed sales have undercut prices from home builders.

The added uncertainty surrounding the credit market crisis and the rapidly slowing economy has resulted in many buyers quickly turning from "bargain hunters" to "skittish" buyers which is likely to put even more pressure on prices as demand again wanes.

In a separate report yesterday, the National Association of Home Builders reported its index of builder confidence dropped to its lowest level since 1985.

After it appeared as though new home construction might stabilize at historically low levels over the summer, it seems that the renewed financial market crisis of the last few months has induced another leg down.

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dearieme said...

It's a wonder that any are being started at all. Are the starts concentrated in areas where the market didn't bubble nad hasn't crashed? Are many of them replacements for old houses whose economic lives have finished? Or are there still economically booming areas where new houses are still needed?

Tim said...

Relative to prior years, the fewest houses are being built in the areas that had the biggest bubbles.

I used to think that there was some minimum level of construction required to keep up with population growth, but housing starts going to zero sometime in the next year wouldn't surprise me now.

Anonymous said...

There is a substantial lag time involved in building a house before construction even begins -- purchasing the land, design, permits, contracting, etc.
Methinks a good portion of houses being built now were conceived in sunnier times before the current woes became apparent.
Expect these stats to drop further and stay down for years.

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