Interest Rate Roundup

Thursday, January 17, 2008

December housing starts plunge more than 14%

We just got our latest look at housing starts -- and the figures showed a dramatic plunge in construction and permitting activity. Here are the details:

* Overall housing starts dropped 14.2% to a seasonally adjusted annual rate of 1.006 million from 1.173 million in November (which was downwardly revised from the originally reported 1.187 million). Single-family starts were down 2.9%, while multifamily starts dropped 40.3%.

On a year-over-year basis, starts were down an eye-popping 38.2%, leaving them at the lowest level since March 1991. From the peak (2.292 million in January 2006), starts are now off 56.1%, as you can see in the long-term chart above.

* Building permit issuance also dropped -- 8.1% to a SAAR of 1.068 million from 1.162 million (upwardly revised slightly from 1.152 million). That's down 34.4% from December 2006 and the lowest since March 1993. Single family permits tanked 10.1%, while multi-family permits fell 4.1%. Permitting is now off 52.8% from its peak of 2.263 million in September 2005.

* Regionally speaking, starts fell everywhere -- 25.8% in the Northeast, 30.8% in the Midwest, 3.3% in the South and 19.6% in the West. Permitting activity fell in three out of four regions -- down 10.6% in the Midwest, down 7.8% in the South and down 11.6% in the West. Permits inched up 1.6% in the Northeast.

No two ways about it: December was a nasty month for the construction industry. Housing starts were off by more than 14% on the month ... 38% on the year ... and 56% from the market peak. In fact, we haven't seen this little construction activity since March 1991. Permits, for their part, dropped 8.1% on the month ... 34.4% on the year ... and 52.8% from their peak. The decline was geographically widespread, too. Construction fell in all four regions, while permit activity fell in three out of four.

These figures confirm that the housing recession continues to deepen. Slumping consumer confidence and tighter lending standards have already taken their toll on demand, and the broader economic slowdown we're starting to see unfold now threatens to make a bad situation worse.

That said, mortgage rates are falling for good-credit borrowers. And the deep cutbacks in home construction will ultimately help get housing inventories down. But it will be a drawn-out process. Expect another relatively weak 2008 spring selling season, and a general malaise stretching into 2009.


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