Interest Rate Roundup

Wednesday, May 16, 2007

A bounce in starts, a swoon in permits

We just got our latest look at home construction activity. In the month of April ...

* Housing starts rose slightly -- by 2.5% to a seasonally adjusted annual rate of 1.528 million units. Regionally, starts were up sharply in the Northeast (+31%) and less so in the West (+7.8%). They fell 14% in the Midwest and were off an ever-so-slight 0.1% in the South.

* Multifamily construction led the way with a 6.3% rise, while single family construction increased by a smaller 1.6%.

* Don't start doing cartwheels just yet, though. The reason: Building permit issuance fell off a cliff. Permits dropped 8.9% (the largest one-month decline since 1990) to an annual rate of 1.429 million. That's the lowest in almost a decade (since June 1997).

What story are these numbers telling? That the home construction market remains mired in the mud. It's true that starts are up slightly from their nadir of a few months ago. But leading indicators of home building and home sales activity -- like today's permit data and yesterday's National Association of Home Builders index -- suggest this bounce will be short-lived. And considering how much excess housing inventory is floating around out there, it makes all the sense in the world for builders to pull in their horns.


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