Housing Starts Rebound: Don't Get Too Excited

The Commerce Deparment reported(.pdf) that housing starts rose for the first time in eight months, up 22.2 percent in February from record lows in January, largely as a result of a rebound in condominium and apartment building.

While a 22 percent gain sounds impressive, it is important to recall just how low last month's record low numbers were.

Housing starts rose from an annualized, seasonally adjusted rate of 466,000 in January to a rate of 583,000 last month, but the January totals were a full 42 percent below the previous record low of 798,000 in January of 1991, a rate that is not adjusted for the increase in population.

This data series goes all the way back to 1959 and to see the rate of housing starts averaging well over a million units for five decades gives the February figure of 583,000 a very different connotation than when simply comparing the total to January.

On a year-over-year basis, housing starts fell 47.3 percent.

Building permits, a forward looking indicator for new construction, rose 3.0 percent in February, from a rate of 521,000 to 547,000, and are now down 44.2 percent from a year ago.

Record foreclosures and an increasing number of sales of bank owned properties have undercut builder prices for many months now with almost 300,000 homes entering some stage of foreclosure in February. This adds to the growing inventory of bank owned properties, most of which have remained off of the resale market according to RealtyTrac, a California-based provider of default data.

Yesterday's National Association of Home Builders housing market index remained near record lows, buyer traffic worsening in the latest report, as the near-term outlook for homebuilders remains grim.

Comments

[Can'tSpotAB...:]

Thanks for putting this in perspective Tim.

Mar 17 06:05 PM

[polishlogician:]

With a 22% increase in housing starts, one might be justified in assuming that there would be some metro market with increased construction. My own informal survey on the web found nothing--all major markets down for the month--the report does not cite individual markets in its research only 'regions' in the US.

Furthermore the the National Association of Home Builders survey, announced just yesterday (as mentioned above) was dismal and unchanged from last month; so apparently the home builders, themselves, failed to take into account all the homes they were building.

This Housing Starts increase also allows Spin-Meisters more time to shine. Briefly, when Housing Starts were Down more than expected in January, and February, CNBC analysts claimed it was a good thing because with 2.8 million homes in inventory (for sale) in the US, less building meant more use of pre-existing inventory; hence, housing prices would eventually rise.

Today, with Housing Starts Up, this was explained as a good thing too, as CNBC analysts pointed out this is a bullish figure for the US markets (as it traditionally is). Seems you can lose for losing.

(Note: Home Depot has announced 7000 layoffs for Q1/2009, poor Home Depot didn't think Housing Starts were all that bullish, but what do they know?)

Mar 17 11:16 PM

[Doug Poretz:]

"Spin Meisters" and homebuilding companies. In the late 1980s, I was VP of NVR, then the nation's largest homebuilder (and now probably the best in financial terms and still very large), and I was focused on investor relations, corporate affairs, etc. So, I guess I did my fair share of "spinning." But I've noticed something different between the current homebuilding crash and the one that happened in the late 80s/early 90s (which was very difficult period with lots of Chapter 11 filings, including NVR). This time, if you simply listened to the homebuilders during their conference calls, read their earnings releases, and followed their own buying and selling, they were very clear about what they thought was on the horizon, quarters (several quarters, in fact) ahead of the actual crash. They were sellers, and they were hardly hiding it. They were pessimists, and they were candid about it. Have the homebuilders begun to articulate more positive vibes? Have they become buyers of their own stock? I haven't seen it. The homebuilders are the closest to the action -- watch what they do before you rely on the "statistics."

Toll Brothers is among the most candid and outspoken of the homebuilders -- they issued their most recent earnings release on March 4 -- just several days ago -- take a look at their release here : tinyurl.com/dapd4p -- see any optimism at all? They aren't even willing to give any earnings guidance at all. The most they could rustle up in terms of optimism was along the lines of "if this happens and then if that happens because of it, well then this might happen and then that might be reason to say the market has bottomed." That's the extent of their optimism.

But beyond the issue of where is the bottom, then the question becomes: what happens then? I believe there are major fundamental changes in residential real estate that will translate into a very long period when the market basically bounces along bottom (of course there will be some spikes and some local markets better or worse than others). I wrote about my analysis of new fundamental problems here: tinyurl.com/cvz8ky

Mar 18 08:56 AM

[Mr. Ed, Jr.:]

Just in the nick of time-- supply was getting a little low.

Mar 18 12:16 PM

[griff allday:]

Here in Austin, home sales are still booming. I can't figure it out. I gather it's because of all the Southern Californians who arrived over the last few years, armed with their boom-time equity. There are still Particle Board Palaces springing up, with prices starting in the 600s, and unremarkable blue-collar block homes (with window units) that are selling for a quarter mil. Austin is a gem of a town, but I am mystified by this. There is clearly a bubble here. The prices are exponentially inflated from their previous sale prices over the last ten years, much like in other heated areas before the bust. Yet, there seems to be no sign of it stopping, even in the midst of this current economic maelstrom. So...I guess it really is all relative?

Mar 19 04:18 AM