Interest Rate Roundup

Wednesday, November 19, 2008

Housing starts, permits plunge to lowest level on record

We just got October data on housing starts and building permit issuance. Here's the rundown of what the numbers showed ...

* Housing starts were at a seasonally adjusted annual rate of 791,000 last month. That was down 4.5% from a revised 828,000 in September. While slightly ahead of expectations for a reading of 780,000, it was also down 38% from 1.275 million in October 2007 and the lowest since the Census Bureau started tracking the numbers in 1959 (!). The peak reading for starts was 2.27 million units in January 2006, meaning we are down 65.2%.

* Building permit issuance plunged 12.1% to 708,000 units from a revised 805,000 in September. That's down 40.1% from the year-earlier reading of 1.182 million, well below forecasts for a number of 774,000, and also the lowest level ever recorded. Permit issuance is down 68.7% from the September 2005 peak of 2.263 million units.

* Breaking it down by property type, single-family starts dropped 3.3% to 531,000. Multifamily starts dropped 6.8% to 260,000. Single-family permitting activity dropped 14.5% to 460,000, while multifamily permitting dropped 7.1% to 248,000.

The meltdown continues in the residential real estate sector. Every single indicator -- starts, permits, mortgage purchase applications, builder confidence -- indicate that the already struggling industry has taken a header in the past couple of months.

Lower construction activity is necessary to bring supply back in line with demand, and builders have made some progress in reducing new home inventory for sale. But with unemployment on the rise, mortgage credit harder to get, and the broad economy slowing, housing demand is sliding. That could necessitate an even lower level of starts -- hard to imagine given that we are already seeing the lowest level of activity in recorded U.S. history.


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