November 17, 2010
U.S. Housing Starts Take A Big Hit
Driven by a 44 percent drop in multifamily units, housing starts in the U.S. fell to a 519,000 annual rate in October, down 12 percent from September and the slowest pace since the record low of 477,000 reached in April 2009. Single-family home starts fell 1.1 percent.
Record-low mortgage rates have failed to boost demand, highlighting the limits of Federal Reserve monetary policy in undoing the damage from the bursting of the housing bubble. Companies like D.R. Horton Inc. are bracing for the worst in early 2011 as unemployment hovers near 10 percent and the lifting of foreclosure moratoriums swells the supply of houses.
Now about that Base Case scenario...
∙ Housing Starts in U.S. Drop 12%, More Than Forecast [Bloomberg]
∙ FHA: Not Out Of The Woods Yet Feeling A Little Less Lost [SocketSite]
First Published: November 17, 2010 6:45 AM
Comments from "Plugged In" Readers
it's down 12% from the DOWNWARDLY REVISED September number.
The original September number was 610,000 revised down to 588,000.
without the revision the decrease would be 15%, with the revision, 12%
seems we've been having a lot of downward revisions lately, so I expect that next month they will downwardly revise today's 519k number.
all that said: reduced housing starts is a GOOD thing for most of the country. we have enough houses as it is. No need to build more. (in most of the country)
lastly: this number affects the National Housing Market more than the local SF market. its importance to SF is more in what it means to macroeconomic fundamentals and availability of housing credit to households. (it shows what those of us with half a brain have known for some time, the green shoots recovery was a transient phenomenon that has come under increasing pressure since summer... some called it a "technical recovery" and others a stimulus and inventory restocking led temporary recovery)
Posted by: ex SF-er at November 17, 2010 7:02 AM
This will not end until the banks clear their books of non productive residential and commercial properties. Gotta get sick and throw up before you feel better....the markets still have the "spins" and won't feel better until the end...ends.
Posted by: Bad Books at November 17, 2010 8:52 AM
about that base case scenario...
not sure what that bit was about. housing starts need to stay low to support a housing recovery.
yes it is a drag on employment, but it is a net positive for 'housing prices'
housing starts of zero would be very bad for employmnet but very good for housing price fundamentals.
there is no clear cut relationship (at this point in time) between housing starts and 'that base case scenario' one way or the other
[Editor’s Note: Think economic indicator and potential impact on demand versus simply impact on supply.]
Posted by: polip at November 17, 2010 8:59 AM
agree with the above comments. I've been mystified throughout the Great Recession by the presentation of low housing starts as "bad" economic news. It is exactly the opposite, since in most places we have much more housing than we need, and it would be disastrous news if builders kept building.
Yes, of course, it's bad for employment in the construction industry, and bad for sales of furniture, dishwashers, etc. But it's the bitter medicine we have to take to get back to even, and get away from an unsustainable consumption-based economy.
Posted by: curmudgeon at November 17, 2010 9:34 AM
Houses aren't interchangeable so new houses in an area with many foreclosures can still sell, particularly in areas with an older stock of housing. There is some point at which this is not true, but I can imagine - and can imagine others - paying a premium to buy a brand new, 2000 square foot home with a modern layout, lighting, energy efficiency, etc; vs. saving something and getting an old, low ceilinged, inefficient existing home. New and existing homes often do not compete.
And potentially the biggest advantage of moving to a new house in a new housing development? Getting away from the people that populate an existing neighborhood. It takes a certain amount of "get off your duff-ness" to move, so the motivated can leave the unmotivated losers behind in the old housing. Not true in fully developed areas, but most housing in the US is greenfielded in fee-simple arrangements by homebuilding companies.
Posted by: djt at November 17, 2010 10:48 AM
I have thought about it. Lots.
Depressed housing starts are an obvious leading economic indicator. They do NOT, however, especially at present, and even in the past, act as a leading Housing PRICE indicator (largely coincident).
This data is not helpful in determining the future of housing prices (base case etc.)
Try this instead. Months of supply. When months of supply nationally is under 9 months, maybe the pressure is over, and under 6 definitely.
Until then, the slide will go on, but housing starts don't yield useful information in a leading fashion for housing prices (for the economy, inducstry as a whole, employment, yes)
and they are basically scuttling along the bottom anyway
aggeregate demand is shot, and will be for a long time
price inflation is not going to be here for a long time
and what that means for housing prices is a very very long slog
[Editor’s Note: Perhaps we’re mistaken, but we’re pretty sure the Moody’s scenarios (such as the "Base Case" referenced above) are broader economic scenarios employed by the FHA as a foundation for their forecasting.]
Posted by: polip at November 17, 2010 12:17 PM
absolutely they use the macro picture to try to figure out housing prices
they have consistently underestimated the impact on unemployment, and consistently overestimated the impact on housing prices.
this isn't to say housing prices are going to improve. far. from. it.
but a rise in housing starts would no more presage a rise in home prices (C-S) than a fall in starts (at this point in the cycle) would suggest further weakening. they do obviously point to continued weakness in the macro picture. obvious loss of aggregagte demand which won't be returning for years.
Posted by: polip at November 17, 2010 9:13 PM