Friday, January 18, 2008

Bad News About Housing Continues

Yesterday the US Dept. of Commerce released their monthly report on new housing starts. As expected new housing starts are down. As a matter of fact new home construction is down 14.2% to its lowest level since May 1991 (WSJ). Below are other comments about the housing market that are not going to make you feel anymore positive about the housing market. From Online WSJ:

Housing starts declined sharply in December, primarily because of a plunge in multifamily starts. Home builders have been very aggressive in trying to bring inventories of unsold new homes down; because new home sales remain very sluggish, builders have been slashing new starts. Nevertheless, with inventories still elevated, with sales still soft, and with lending standards now tighter, housing starts will continue to contract. –Steven A. Wood, Insight Economics

No sign of slowing in the rate of decline in housing activity is evident in this report, which suggests that the housing drag to GDP in the first quarter will again be sizeable. However, the speed of decline in new construction is likely to limit any further additions to the stock of unsold new homes. –Bear Stearns

We are more interested in permits, because they are less affected by the weather. Single-family permits were very weak, down 10.1%, suggesting further downside risk for starts over the next month or two. The rate of decline of permits has reaccelerated markedly since the turmoil in the markets began in the summer; builders have finally thrown in the towel. This is a precondition for recovery, as it will eventually reduce the inventory overhang, but there is a LONG way to go. –Ian Shepherdson, High Frequency Economics

The decline in starts reflects the oversized nature of the inventory overhang that plagues the development community. We anticipate that the now multiyear correction in the residential construction sector will continue to act as a deadweight on output throughout the 2008. With the level of foreclosures expected to add to the already bloated existing stock on the market the adjustment in the development community will continue to be towards the negative. –Joseph Brusuelas, IDEAglobal

Housing market conditions were already in quite bad shape when credit market turmoil intensified in August. With mortgage financing further constrained and inventories of unsold homes quite high, the near to medium term outlook for housing starts is not good. The magnitude of the housing bubble was unprecedented, and the corrective process promises to be a long and painful one. We look for activity levels to continue to slide in the months ahead and for pricing to erode a good deal further. –Joshua Shapiro, MFR, Inc.

All the key metrics of housing activity are now threatening to breach the lows set in the severe 1990-91 housing recession. Permits for new home construction also continued their descent suggesting further declines in new starts lie ahead. While these data confirm that the housing slump will continue to drag down overall economic activity, the lower volume of new building — combined with more aggressive marketing — should help builders accelerate the reduction in inventories of unsold homes –David Resler, Nomura Securities

A 40% [decline] in multi-family starts is far far out of line with the multi-family permit data, suggesting either statistical noise that will be revised away in the coming months or perhaps a winter weather related anomaly. The outlook for multi-family construction is more favorable, which is worth noting given the tendency to tar the entire housing market with the same brush used to paint the dismal picture of the single family segment of the market. –Richard F. Moody, Mission Residential

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