'Improved' Housing Starts May Impede Recovery

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US Housing Starts - August 1985-August 2009

The US Census Bureau released August housing starts data this morning which showed a 598,000 (seasonally adjusted annualized rate) rate of starts. The August rate was 1.5% higher than July's 589,000 figure, but still 29.6% below the August 2008 rate of 849,000.

The current recession has decimated housing starts far more than has ever been witnessed during the modern era of data recording. Prior to the current state of malaise, analysts had viewed the 1,000,000/year rate as the level at which new starts could not remain below for any extended period of time.

After all, history has shown that whenever starts slip below 1 million, they do not remain so for long, and quickly spring upwards. With US starts below that threshold for the past 13 months however, that conventional wisdom has been shattered.

In order for a sustainable recovery in housing to occur, starts must remain at these depressed levels for at least another year. Unless builders plan on selling all newly constructed homes below their cost, they will not be able to compete with the massive foreclosure inventory that is bleeding onto the market.

The August numbers do not indicate that starts have raced ahead of a level conducive of a recovery, however, further "improvements" in the starts area will serve to hinder, rather than promote, a housing market recovery.

InfoNgen was used to research this article

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