Interest Rate Roundup

Tuesday, April 17, 2007

The latest read on home construction ...

March housing starts and permits figures were just released. Here's what they show ...

* Overall starts increased 0.8% to a seasonally adjusted annual rate of 1.518 million units from 1.506 million units in February. The March figure topped expectations for a reading of 1.495 million. Single family permits were up (2%), while multifamily permits were down (-3.8%)

* Building permit issuance climbed 0.8% to 1.544 million from 1.532 million. The story here was the same -- single family permits were up 1.4%, while multifamily permits were down 0.7%.

* Year-over-year readings were still deeply in negative territory. Starts were down 23%, while permits were off 25.9%.

The March starts and permits figures were clearly above expectations. But is that really "good" news for the housing industry? Not necessarily. A key reason: Inventories are extremely high in the new home market. There were 546,000 new homes for sale as of February, just shy of the all-time high of 573,000 in July 2006. On a months supply at current sales pace basis, we're sitting on 8.1 months of inventory. That's the most since January 1991. We also have a glut of existing homes.

To get the supply/demand situation in better balance, we'll need to see inventories come down. That, in turn, will require an even lower level of housing starts over time.

One other thing: If you look at the regional breakdown of starts last month, most regions were weak (Northeast -6.1%, South -2.7%, West -7.7%, etc.) But starts in the Midwest exploded higher -- by 44.5%. Could this be yet another case of weather skewing the figures? Maybe.


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