Interest Rate Roundup

Wednesday, April 16, 2008

March housing starts, permitting activity plunge

March residential construction data was just released, and the numbers were pretty awful:

* Overall housing starts (see chart above) came in at a seasonally adjusted annual rate 947,000 in March, down a sharp 11.9% from February's 1.075 million units . That was also far below the 1.01 million units the market was expecting, and off 36.5% from the year-earlier reading of 1.491 million.

* Building permit issuance also dropped quite a bit -- 5.8% to 927,000 units from 984,000 in February. That's down 40.9% from the year-earlier reading of 1.569 million units.

* Breaking it down by property type, single-family starts were off 5.7% while multifamily starts plunged 24.6%. Single-family permitting activity dropped 6.2%, while multi-family permits fell just over 5%.

* These figures leave housing starts at the lowest level since March 1991 (921,000) and a hefty 58.7% off their January 2006 high (2.292 million units). Building permits are at the lowest since April 1991 (916,000), and down 59% from the September 2005 high (2.263 million units).

The free fall in home construction continued in March, with sharp declines in both permitting and starts. The declines were widespread geographically, too -- construction activity dropped in all four regions of the country, while permitting fell in two out of four, and was essentially unchanged in one other (the South at +0.4%).

If you combine today's data with the figures from the NAHB yesterday, you see a housing market that's still struggling to find a bottom. Builders are more positive about the future than they've been recently. But buyer traffic and current sales remain weak, and construction activity is falling off a cliff.

If there's a bright spot out there, it's this: The painful contraction in housing starts will help alleviate the overhang of excess inventory. Eventually, that will restore some pricing power in the housing market. But we have to get from here to there. And it'll take further price cuts by both new and existing home sellers to clear the supply glut and move us in that direction.


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