Housing Perspective: October Housing Starts
By AUSTIN NELSON
The Commerce department released its latest figures for housing starts in the month of October, providing further evidence of an American economy in very poor shape.
Starts for the month came in at a seasonally adjusted annual rate of 791,000, down 4.5% from the previous month. Furthermore, permits for future construction fell 12% to 708,000, indicating that further declines in construction should be expected. The decline is housing starts represented a 38% decrease from last year. Housing starts dropped by 25% from 2006 to 2007, meaning these further declines compound troubles for an already depressed market.
These numbers are the latest in a series of indicators of the continued decline of the U.S. housing market. There are simply not enough qualified buyers to soak up the enormous supply that is being seen nationwide. In the current climate of falling home prices and tighter credit standards, homebuilders cannot attract buyers to purchase their newly constructed homes. With less cash coming in the door, they can’t afford to break ground on new projects.
Drilling down more deeply into the numbers, October’s declines are largely a result of a 31% month-over-month decrease in starts in the Northeast region, where real estate markets have more recently begun to decelerate. This trend is also evidenced by recent surges in pending home sales in the West, while the Northwest is starting to lag.
The data is further evidence the drastic declines of western real estate markets are beginning to spread eastward across the country (Florida notwithstanding). Markets that have previously been strong are now showing signs of weakness and should be expected to continue this trend. Declines in spending within the construction industry are adding drag to the already slowing U.S. economy, which will further decrease the demand for housing.
As we commented yesterday, consolidation in the homebuilder industry isn’t just likely, its inevitable. Just as stronger banks are scooping up their weaker rivals, so too will the “cream” of the homebuilder crop rise to the top of the market.
Tags: construction, Housing, northeast, west