Interest Rate Roundup

Wednesday, February 20, 2008

Housing starts inch higher; permits fall in January

The latest news on housing starts just hit the tape ...

* Overall housing starts climbed 0.8% to a seasonally adjusted annual rate of 1.012 million in January from 1.004 million in December (previously reported as 1.006 million). Economists expected starts to rise 0.4%, according to a Bloomberg survey. Single-family starts were down 5.2%, while multifamily starts rose 22%. On a year-over-year basis, starts were down 27.9% from 1.403 million in January 2007.

* Building permit issuance, on the other hand, dropped. It fell 3% to a SAAR of 1.048 million from 1.08 million in December. That's down 33.1% from January 2007 and the lowest since November 1991. Economists were expecting a drop of 1.7%. Single family permits fell 4.1%.

* Regionally speaking, starts rose in two out of four regions -- 18.9% in the Northeast and 12% in the Midwest. They fell 2.9% in the South and 6.2% in the West. Permitting activity fell 5.8% in the Northeast, 1.5% in the South and 14.1% in the West. Permits rose 10.4% in the Midwest.

The home building industry continues to struggle. Starts remain at depressed levels, while building permit issuance is plumbing depths not seen since 1991. Builders are reluctant to ramp up construction because of the large glut of for-sale homes on the market. They're also keenly aware that tighter mortgage lending standards are impacting demand, and that buyer confidence is low.

The Federal Reserve is attempting to light a fire under the industry by cutting short-term interest rates. Unfortunately, those cuts are coming at a time when inflation is running hot. That has bond investors spooked. They're selling longer-term paper, and that is driving longer-term mortgages rates up, rather than down.

In short, the outlook for home sales, starts and permits isn't all that encouraging. Sales and construction activity will remain muted throughout 2008 and likely into 2009.


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