New Home Construction Plunges to 17-Year Low

The Commerce Department reported new home construction fell to levels last seen in 1991, housing starts plunging below the seasonally adjusted annualized rate of 900,000 for only the sixth time since record keeping began in 1959.
Note that these figures are not adjusted for population growth and that doing so would make the August data the lowest on record, going back almost 50 years.

Paced by a decline of 15.1 percent in the construction of multi-family homes, housing starts fell 6.2 percent last month to an annual rate of 895,000 units following a downwardly revised rate of 954,000 in July. On a year-over-year basis, housing starts are down 33.1 percent.

Building activity declined in all parts of the country except for the West. Construction fell 14.5 percent in the Northeast, 13.6 percent in the Midwest, and 7.4 percent in the South.

Permits for new construction, a leading indicator for future building activity, dropped to an annual rate of 854,000 units in August, down 8.9 percent from 937,000 in July and permits have now fallen 36.4 percent from year-ago levels.

Not adjusting for population growth, these levels of housing starts and permits have been seen only a few times before over the last 50 years - in 1966, 1974, 1981-1982, and 1990-1991 - which, except for 1966, all occurred during recessions.

Comments

[DCM:]

"Permits for new construction, a leading indicator for future building activity, dropped to an annual rate of 854,000 units in August"

What in the world are these builders thinking? Would like to know which banks are lending construction money and WHY? Like we need more housing units on the market to meet the enormous demand!

2008 Sep 18 08:19 AM

[svkoho:]

DCM, I wondered the same but there are pockets obviously, like where I live in jackson hole. I talked to the manger of my lumber yard and he said he has had his busiest summer yet. The ultra rich don't need loans to build or remodel. We may need housing going forward but we must stop building vinyl _ _it boxes in the distant suburbs. If this housing depression stops some sprawl, it will have been worth it IMO.

2008 Sep 18 09:39 AM

[User 196973:]

The comments by DMC demonstrate the danger of drawing conclusions from broad national statistics. Housing is a local demand based product and it is not fungible. If you live in Raliegh NC, and you work there, and have two kids in school, it really doesn't matter that there are 4000 vacant spec or foreclosed homes in Reno Nevada selling at a 50% discount! This is why despite the horrible general market conditions prevailing in the US, over 500,000 new homes are still being sold.

The other factor that is not included in any other analysis I have seen is the number of homes being built to simply maintain the existing housing stock; that is replacing units destroyed by fire, storms, condemnation, etc. The last study I have seen sets this number atrox. 250-300,000 units per year. This study is over 20 years old, and was done when the national housing stock was about 75,000,000 units. Today it is about 125,000,000 units. It would seem logical the 250-300,000 number is too low. (can anyone help with better data?)

Based on the above it appears that the current level of starts is not adding to the current housing surplus.

2008 Sep 18 09:52 AM

[specks:]

I think the permits number is far more important as a leading indicator. I'd like to see some data relating to the decline during the dirty thirties.
Anyone know where to get that?

2008 Sep 18 05:17 PM

[neeb??:]

Could one attempt using land registry data for that period?

2008 Sep 19 08:44 PM

[Louay:]

As State before, building new houses only stop when the whole economy is on fire, but the number give a good indication on how healthy this market is, I don't have the 1930s num, but since the WW2, the worst numbers are 1M new house /year during the 1991 recession, this would indicate that this crisis is comparable to 1980S&L and seems more damaging, the Bush administration have kept the interest rates at historic low during a bubble of the real estate, just to hide the short effect, a blast in 1996 would be a lot more easy than now, which will be a lot better than few years later. Now it is a commodities market, and gold is the king haven until the Bushs stop printing free money!

2008 Sep 20 11:47 PM