Interest Rate Roundup

Wednesday, September 19, 2007

Housing starts and permits fall again

August housing starts and building permits data just hit the tape. The details?

* Starts fell 2.6% to 1.331 million units at a seasonally adjusted annual rate from a 1.367 million rate in July. July's rate had previously been reported as 1.381 million units. On a year-over-year basis, starts were down 19.1%. The August 2007 reading was the worst since June 1995 (1.281 million).

* Building permit issuance sank 5.9% to 1.307 million from 1.389 million. The July figure was revised up from 1.373 million units. On a year-over-year basis, permits were off 24.5%. The August 2007 reading was also the lowest since June 1995 (1.305 million).

* Regionally, starts fell in two of four areas (the West, by 18.4%, and Northeast, by 38%). They rose in the Midwest (4.2%) and South. (+11.4%). Permit issuance declined in three out of four regions -- the Northeast (-3.9%), Midwest (-9.6%), and South (-8.4%).

Home construction took another step down in August, and so did permit issuance. It's not surprising to see builders put the brakes on, given the large supply glut we're starting in the face. We have about 3.85 million existing single-family homes on the market now. That's the most ever and much higher than the 1.5 million-to-2.5 million unit range customary throughout the 1980s and 1990s. In the new housing market, we're oversupplied to the tune of 200,000 units.

Looking to the future, construction activity should continue to fall even if the Federal Reserve rate cut helps to stimulate sales. Again, it goes back to the large inventory overhang. Until that's worked down to a more normal level, builders aren't going to shift the bulldozers and backhoes into overdrive.


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