November Housing Starts: All-Time Low

The number of housing starts and building permits, key measurements of home construction, plummeted to record lows in November, a Commerce Department report showed on Tuesday.

• November new building permits, which is a figure used as the earliest indicator for developments in the housing market, fell 15.6% to a seasonally adjusted annual rate of 616,000 units from 730,000 units in October. That was a 48.1% drop on year-over-year basis from the revised Nov. ‘07 estimate of 1,187,000. That was also much below analyst estimates of 700,000.
• Housing starts reached a seasonally adjusted annual rate of 625,000 from a downwardly revised level of 771,000 in October. That was an 18.9% drop, the steepest since March 1984. Housing starts were down 47% below the revised Nov. ‘07 rate of 1,179,000 - the largest year-over-year drop since January 1991. Consensus expectations on Nov. starts were 735,000.
• Single-family housing starts fell 16.9% from October to a 441,000 unit rate, a record low. The November rate for units in buildings with five units or more was 166,000.
• Permits fell 12.3% to 412,000 unit rate, 12.3% below the October figure of 470,000, and the lowest since November 1981. The figures suggest a decrease in investment and corporate optimism. Authorizations of units in buildings with five units or more were at a rate of 182,000 in November.
• By region, November starts of single-family units in Northeast fell 42.1% on month-over-month [m/m] basis. In the Midwest, starts fell 12.9% m/m. In the South starts fell as well, posting a 13.6% drop m/m. Lastly, starts in the West fell 15.5% m/m.

Homebuilders in the face of a recessionary economy continue to scale back their construction of new homes. The cutback in residential construction, based on today’s report, is the largest amount in nearly a quarter-century, which directly reduces the annual rate of U.S. economic growth. Needless to say, the housing sector activity remains depressed due to already known factors.

However, while the outlook for home construction going forward will at this point also depend on unfolding developments in mortgage markets, perhaps, in the long run, the current deterioration in new home construction could help the housing market prices recover.

The housing industry accounts for about 27% of investment spending and 5% of the overall economy.

Comments

[Lincolnpark:]

One of the catalysts for the current downturn was the deflation of home prices due to easy credit and overbuilding. Each announcement of lower housing starts and permits is great news, in my opinion, because it helps reduce the inventory of homes (or at least the growth of inventory) bringing us closer to an equilibrium when we can see a firming of home prices. Signs of this will give homeowners more confidence in their net worth and potential homebuyers will stop waiting for prices to drop more. This, combined with lower mortgage rates and tighter lending standards will help usher in a sustainable growth in the economy. I don't know if starts need to go to zero to achieve this or if immigration, other household formation and pent-up demand mean that equilibrium comes at 500,000 starts, 300,000 or maybe we are already there.

2008 Dec 19 04:27 PM

[jepittman:]

New family formation runs roughly 100,000 per month. That is 1.2million homes per year. Unsold inventory is about 10 months or 1 million units. If starts are at 600,000 then unsold inventory should reach normal levels by the end of April or May at the latest assuming starts remain depressed until then. By July housing starts should be accelerating and confidence in the recovery will be growing. With mortgage rates falling this is not an unreasonable assumption IMO.

2008 Dec 21 11:56 PM