Interest Rate Roundup

Tuesday, March 16, 2010

Housing starts, permits flat lining

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

* Housing starts fell 5.9% to a seasonally adjusted annual rate of 575,000 in February, which sounds worse than the -3.6% forecast. But the January starts figure was revised up to 611,000 from 591,000 and the raw number that economists were looking for was 570,000. Long story short, starts were mostly in line with expectations. Building permit activity fell 1.6% to 612,000, which was slightly better than the 601,000 forecast.

* By property type, single family starts dipped 0.6%, while multifamily starts tanked 30.3%. Permitting activity slipped 0.2% in the single-family market and fell 7.6% in the multifamily category. If you step back and look at the longer-term trend, it's fair to say we've basically flat-lined for the past year.

* Regionally, starts were a mixed bag. They dropped 15.5% in the South and fell 9.6% in the Northeast, but rose 7.9% in the West and gained 10.6% in the Midwest. Building permits slipped 2.1% in the West and fell 5.8% in the South. They flat lined in the Northeast and rose 11.7% in the Midwest.

Someone should get out the paddles -- because the housing market is flat lining! Tight credit conditions, anemic demand, and inventory pressure from the "used" home market are all keeping builders on the gurney. And frankly, that's what I've been expecting.

While the inventory of new homes on the market has plunged to the lowest level since the early 1970s, distressed inventory continues to be parceled out into the market. That means buyers have plenty of cheap existing homes to choose from. That, in turn, means builders have little incentive to ramp up production. We won't see a more notable upturn in starts -- or if you prefer, the patient walking on his own -- until 2011. But at least the three-year crash that began in 2006 is over.


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