Interest Rate Roundup

Wednesday, February 17, 2010

Housing starts pop, permits fall in January

Housing starts and permits data for January just hit the tape. Here's a recap of the numbers:

* Overall housing starts rose 2.8% to a seasonally adjusted annual rate of 591,000 in January from 575,000 in December. The level of starts was slightly above expectations for a reading of 580,000. However, building permit activity fell 4.9% to 621,000 from 653,000.

* By property type, single family starts gained 1.5%, while multifamily starts popped 9.2%. Permitting activity inched up 0.4% in the single-family market, but fell 23% in the multifamily category.

* Regionally, starts rose 1% in the South, gained 8.9% in the West, and jumped 10% in the Northeast. Starts dipped 3.2% in the Midwest. As for building permits, they dipped 1.3% in the South, declined 17.8% in the Northeast, and plunged 20.2% in the Midwest. Permits rose 8.5% in the West.

I hope I don't sound like a broken record here. But the housing market continues to show signs of stabilization. Indeed, builder optimism, sales, and starts are all flattening out after a plunge that reminds me of the ski slopes at the Vancouver Olympics. With new home supply running at the lowest levels since the early 1970s, builders are running lean and mean -- making it likely that we've seen the worst of the construction downturn.

At the same time, a vigorous upturn is unlikely. The supply of "used" homes on the market is still elevated, and distressed property will continue to be parcelled out by agents, banks, and other lenders over time. Until that supply is exhausted, construction activity will remain muted.


  • This stabilization may well prove temporary because there are between 1.5 and 5 million "shadow" foreclosures in the pipeline (estimates vary). These were delayed by a variety of tactics (HAMP for example) but eventually, the outcome will be the same - people can't afford those houses and will have to be foreclosed.

    S&P expects these foreclosures to hit the market later this year (some of them may come in the form of short sales). All of this should renew pressure on homebuilders.

    Also, we could look at it at another angle. If we look at the housing situation nationwide, then given the level of prices, population, housing stock (empty cities in CA, for example), etc., we might conclude that there is _enough_ housing as of today. No new houses need to be built. This would mean that homebuilding activity is still too high (more than zero) and may have to fall even further to reflect fundamentals.

    By Blogger Alex K., at February 17, 2010 at 9:37 AM  

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