Housing Starts Flatline

It appears there was good reason for yesterday's dimming confidence by homebuilders - according to today's report(.pdf) from the Commerce Department, housing starts and permits for new construction have flattened out at severely depressed levels.
Housing starts increased modestly, from an annual rate of 587,000 in August to 590,000 in September. However, the gain would not have occurred if not for a downward revision to the August data from 598,000.

In a way, this is reminiscent of a few years ago when there were huge downward revisions to prior data and, each month, gains would be reported when comparing new unrevised data to previous data that had been revised, all part of a clear and persistent downward trend.

The good news today is that, as shown clearly in the chart above, there's not much room to move down from current levels of home building that are still about 75 percent below the 2005-2006 peak, remaining near all-time lows. From year-ago levels, housing starts are down 28.2 percent.

Permits for new construction fell 1.2 percent in September, from an annual rate of 580,000 to 573,000 and as is the case for housing starts, have clearly flatlined over the last five months, a point that should be quite clear to see in the enhanced image to the right from the larger graphic above.

While this is not necessarily bad news for the housing market in general since, if there's one thing that we don't need right now it's more housing inventory coming onto the market. It is certainly not an indication of a resumption to more normal levels of residential construction that would create a few jobs and boost economic growth.

The downward revisions to previous data and the fact that permits - a leading indicator for new home construction - appear to be weaker than housing starts do not bode well for a sustainable rebound in this sector.

It's no wonder that homebuilders are clamoring for an extension and expansion of the home buyers' tax credit that, according to news this morning, has had more than its share of fraud.

Somehow, just throwing money at the bursting housing bubble doesn't seem to be fixing it...

Comments

[Mad Hedge F...:]

ajh Since I have been pelted daily with predictions that residential real estate has bottomed for the last two years, like hail in a Midwestern summer thun derstorm, I feel a public duty to tell you that is just not the case. Now that the state and federal moratoriums are off, foreclosures are accelerating. There are over a million Option ARM and Alt-A loan resets about to hit the fan. Since many owners will not see positive equity in their homes in their lifetimes, banks are seeing more walk aways and keys mailed in, often with tearful letters attached. The run up in mortgage rates from 4.5% to 5.5% has yet to hit the market. Some 18 million homeowners divert 50% of their incomes to pay for housing, double the 25% that is considered healthy, and many of them are losing jobs at a record rate. While the volume of units sold has rebounded, the action is dominated by speculators, flippers, and bottom feeders bidding for properties at 10-40 cents on the dollar, not exactly a sign of health. I like to visit the plethora of open houses in my neighborhood, but always find the dead broker hanging from the showerhead a bit of a downer for a Sunday afternoon. Call me when Ozzie & Harriet Nelson come back to the market. I listened to industry insiders call the bottom of the Japanese real estate market for 15 years, until they finally died, and the market is still a fraction of its 1990 high. I think we are closer to the bottom than the top in terms of price, but closer to the top than the bottom in terms of time. You can take that to the bank.

Oct 20 11:12 AM

[JPDX:]

The housing market is something you have to look at by region or city. Some places bottomed long ago or are already at bottom. Some are not. I don't feel the national stats ever really make much sense to look at. I think we all know the govt. will create some type of extension to the buyer incentive. Hopefully extend it to all buyers this time. Either way. it's not ending in December, you can count on that.

Oct 20 12:47 PM

[manya05:]

At some point the homebuilding industry in the US will have to take the blinders off and look how housing developments are planned, financed, sold, and built in places like Europe or Latin America. It is not unusual for a homebuilder to have sold 75% of a development by the time the bulldozer hits the ground, and 100% 2-3 months before it is ready to occupy. As a result, the pipeline absorbs the swings and allows for better adjustment. As a results, prices dropped (minimally), but there was no collapse, homebuilders are still in business, still building (less), and there is no issue with excess inventory.

Oct 20 01:00 PM

[Bill S. Friend:]

Wait till the government cant do anymore to prop up ANY of the markets, or the dollar for that matter. Its all paper mache facades, with puppet show regulations. Our biggest obstacle seems to be the government. Failure is a part of life, everything has a beginning and an ending.

Oct 20 01:57 PM

[Doc 224899:]

WANT TO FIX THE HOUSING CRISIS, FIX THE BANKING CRISIS, AND FIX THE REAL ESTATE MARKETS, THEREBY FIXING THE WHOLE ECONOMY?

Oct 20 02:20 PM

[Doc 224899:]

It's a simple solution: establish rational, objective criteria, based on sound reasoning and relevant facts that are verifiable, that banks can apply to all applicants in the same way in order to determine who is a good risk for a mortgage and how much they are likely to be able to afford on a monthly basis for the next 15 or 30 years.

This will fix the credit crisis, the real estate crisis, the financial crisis, and the national economic crisis, because they all stem from a failure to apply such criteria to applicants for home mortgages.

Oct 20 02:29 PM

[OldSusanna:]

Unfortunately; in my area (Bend, Oregon)--a multitude of nasties came together to create what is now our mess, which is: an over-abundance of empty commercial and residential properties; bankrupt construction companies (developers, general contractors and sub-contractors); defunct real estate companies; and, massive business closures in allied industries such as hardware stores, truss manufacturers, cabinet shops, furniture stores, etc... Not to mention that we have the highest foreclosure rate in the state, and well above average unemployment rate. Our now "broke" city and county (where did all those fees go?) together with developers, large construction companies and realtors, in a gluttonous frenzy, raped and pillaged Central Oregon. So; sensibility, responsibility and accountability must be somehow re-founded in those outside the financial world as well...

Oct 20 07:11 PM

[twitee:]

The banks or bankers did not care how you got your loan for the house? You could even forge all your documents if you wanted....no one check it......As long as you got the loan they were happy! It was all planned for the banks by the banks in case anyone cares to know.

When they gave someone a loan they ensured the loan without a worry (with AIG)....Banks were allowed to leverage loans 100-1000X their actual available cash......you see the bankers were getting higher commission by selling more loans (with ZERO percent down payment on a $500K house).....

The too big to fail banks bundled billions of those loans and sold it to other financial markets around the world for higher interest.....The CEO and coworkers got paid royally for being so genius....

Other smart money management institutions Like GS placed a bet on the failure of the insurance companies that insured those loans......the current financial disaster is all about the credit Default Swaps (CDS).

The entire world output is only 50 trillion annually........the financial system has accumulated more than 800 Trillion with a "T" of CDS....

It gets even more exiting, when the housing prices bubbled and the home owner salalry did not increase or lost their jobs the whole house of card started to collaps on it's own.......Our Government used the taxpayer money to bail out the financial system first!!!!!!

We have millions of homeowners are about to default on their homes without much of help from the financial institutions or the Government.....It's all for the corporation by the corporation my friend! Welcome to Capitalism at it's best.

The only way out of this mess is the total overhaul of the financial system including the Federal Reserve (that is behind all the mess)

They only question I have is was all of this was designed to happen to slow down the emerging economy or United States allowed few greedy people to destroy it?

This is not about the inflation or defalion it is all about the manipulation within the financial market.

Oct 20 07:13 PM

[a fat panda:]

Beyond region and state; you need to look at pricing point. And once you look at pricing point, upper end housing has a much bigger problem than low end housing. I don't know anywhere that has 'bottomed' in the upper-end of housing.

It is too soon to say that anything has bottomed. There is too much government intervention in the system to say we have bottomed. It is just as likely that the government has simply induced future buyers to buy today with cheap interest and tax incentives. In that case, we haven't bottomed, we are just deflating the bubble more slowly.

On Oct 20 12:47 PM JPDX wrote:

> The housing market is something you have to look at by region or
> city. Some places bottomed long ago or are already at bottom. Some
> are not. I don't feel the national stats ever really make much sense
> to look at. I think we all know the govt. will create some type of
> extension to the buyer incentive. Hopefully extend it to all buyers
> this time. Either way. it's not ending in December, you can count
> on that.

Oct 20 07:34 PM

[tripleblack:]

With winter coming on, its going to be a tough time for housing starts, and I would expect that flatline to drop a little more over the next 4 months.

Oct 20 07:56 PM

[Tim Iacono:]

That's funny. The author of this article (that would be me) also lives in Bend. We've only been here a few months though and we still don't know quite what to make of the place and now it's getting cold...

On Oct 20 07:11 PM OldSusanna wrote:

> Unfortunately; in my area (Bend, Oregon)--a multitude of nasties
> came together to create what is now our mess, which is: an over-abundance
> of empty commercial and residential properties; bankrupt construction
> companies (developers, general contractors and sub-contractors);
> defunct real estate companies; and, massive business closures in
> allied industries such as hardware stores, truss manufacturers, cabinet
> shops, furniture stores, etc... Not to mention that we have the highest
> foreclosure rate in the state, and well above average unemployment
> rate. Our now "broke" city and county (where did all those fees go?)
> together with developers, large construction companies and realtors,
> in a gluttonous frenzy, raped and pillaged Central Oregon. So; sensibility,
> responsibility and accountability must be somehow re-founded in those
> outside the financial world as well...

Oct 20 10:06 PM

[Albertarocks:]

On Oct 20 10:06 PM Tim Iacono wrote:

> That's funny. The author of this article (that would be me) also
> lives in Bend. We've only been here a few months though and we still
> don't know quite what to make of the place and now it's getting cold...<

Cold? Tim, come on up here in January for a visit. I'll buy you dinner and a nice cold beer or two or three. We'll discuss cold then, ok?

From my perspective, this story from Old Suzanna (posted above) is really sad to read. I haven't been to Oregon since... are you ready for this.... 1975. But I was struck by how pretty that state is... reminded me of B.C. I remember driving the coast highway and seeing a school of at least 400 dolphins leaping around (all going the same direction) about 300 yards offshore. I left Oregon with a thought that if I even moved to the USA I could easily be attracted to Portland.

I have a brother who owns 15 homes, all of which are located in the "best" part of a major city (in Canada). They're all rented out to people who can still faithfully pay their rent. But I've warned him time after time that "real estate CAN fall in value" and advised him to sell some of his houses at what I thought was the peak in price (turns out I got the timing exactly right, May 2007). He didn't care, he was a "long term" thinker and he didn't sell a single one.

Now that the peak has passed and gone and prices are down 15-20%, I asked him how he thought about it now. And his attitude hasn't changed. He doesn't care how far they fall as long as they still provide some retirement income for him in the years to come. I asked him how nervous he is that they might fall below the mortgage value and he said: "I'm not too concerned about that because none of them have any mortgage".

I asked him how in hell he pulled that off and he said he had a philosophy of only buying if the mortgage could be paid off in 10 years. I couldn't figure out how to do that once. He did it 15 times. I guess the lesson to be drawn from this is that when we (and I'm guilty too) buy real estate beyond our means and buy into a bubble, we're setting ourselves up for a disaster. The saddest part is that people like my brother, like some of the good American people who think like him and amassed small fortunes, are all getting slammed by the falling prices that are not of their own creation. But those are the ones who will survive.

How does all this relate to Oregon? I don't know, I started writing this post so long ago... I forget. But I liked the state when I was a young phart, and when I think of prosperity and a good life in the United States, for some reason I envision Oregon, not Wall Street.

Oct 21 01:00 AM

[Living4Divi...:]

"Somehow, just throwing money at the bursting housing bubble doesn't seem to be fixing it."

Yet, the Government continues to do just that.

Housing prices have been declining and their is clearly and excess supply of existing homes. Yet, through the FHA and oddly enough USDA (yes, US Dept of Agriculture), the Fed Govt continues to support new housing starts. This makes no sense.

I say the Government recognize that the nation doesn't need to build any more new homes until demand catches up with supply. Remove all Govt subsidies (FHA and USDA cheap loans) to home builders. If someone wants to buy a NEW home, they will have to obtain their own private financing.

The Govt should still maintain their subsidies for existing homes.

This policy will encourage the purchase of existing homes.

Oct 21 09:34 AM

[Windsun33:]

A report out just last night says that housing prices in Phoenix AZ are expected to drop another 23%, on top of the already 50%+ drop in the past two years. If that comes to pass, that would put housing prices back where they were about 15 years ago, or more.

Oct 21 11:01 AM

[Bigman16:]

Mad Hedge - good call on the the Sunday afternoon realtor hangings!

Oct 21 12:22 PM

[Sean in CA:]

"an" excess supply.


On Oct 21 09:34 AM Living4Dividends wrote:

> "Somehow, just throwing money at the bursting housing bubble doesn't
> seem to be fixing it."
>
> Yet, the Government continues to do just that.
>
> Housing prices have been declining and their is clearly and excess
> supply of existing homes. Yet, through the FHA and oddly enough USDA
> (yes, US Dept of Agriculture), the Fed Govt continues to support
> new housing starts. This makes no sense.
>
> I say the Government recognize that the nation doesn't need to build
> any more new homes until demand catches up with supply. Remove all
> Govt subsidies (FHA and USDA cheap loans) to home builders. If someone
> wants to buy a NEW home, they will have to obtain their own private
> financing.
>
> The Govt should still maintain their subsidies for existing homes.
>
>
> This policy will encourage the purchase of existing homes.

Oct 24 03:52 PM