Housing Starts Green Shoots Wither On Vine

After optimists talked up rising housing starts for several months as green shoots, improving conditions, etc., reality came knocking in full force with the New Residential Construction Report For October 2009.

BUILDING PERMITS

Privately-owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 552,000. This is 4.0 percent below the revised September rate of 575,000 and is 24.3 percent below the October 2008 estimate of 729,000.

Single-family authorizations in October were at a rate of 451,000; this is 0.2 percent below the revised September figure of 452,000. Authorizations of units in buildings with five units or more were at a rate of 85,000 in October.

HOUSING STARTS

Privately-owned housing starts in October were at a seasonally adjusted annual rate of 529,000. This is 10.6 percent below the revised September estimate of 592,000 and is 30.7 percent below the October 2008 rate of 763,000.

Single-family housing starts in October were at a rate of 476,000; this is 6.8 percent below the revised September figure of 511,000. The October rate for units in buildings with five units or more was 48,000.

HOUSING COMPLETIONS

Privately-owned housing completions in October were at a seasonally adjusted annual rate of 740,000. This is 1.9 percent above the revised September estimate of 726,000, but is 29.9 percent below the October 2008 rate of 1,055,000.

Single-family housing completions in October were at a rate of 528,000; this is 10.7 percent above the revised September figure of 477,000. The October rate for units in buildings with five units or more was 200,000.

Total Privately Owned Housing Starts



Looking at the chart it is hard to make a case for optimism in the first place.

Before the housing numbers release this was the Bloomberg headline

Builders Probably Broke Ground on Most U.S. Houses in 11 Months

Builders in October probably broke ground on U.S. houses at the fastest pace in 11 months, and consumer prices held below the Federal Reserve’s long-range goal, economists said reports today may show.

Housing starts rose 1.7 percent to an annual rate of 600,000, the most since November 2008, according to the median forecast of 77 economists in a Bloomberg News survey.

Government tax credits and lower prices and borrowing costs may spur residential sales and construction in coming months, indicating housing will help the economy recover.

“Housing is starting to turn,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York.

Housing Starts Forecast



The lowest number out of 77 economists was 570,000. The number came in at 529,000.

Some might claim that concern over the $8,000 housing tax credit is to blame. Well even if so, what exactly does that say about the recovery when government has to give away money to home buyers?

Who Wants A House?

I keep asking "Who wants a house, can afford a house, and does not yet have a house?" Unfortunately there is no such survey, but the number cannot be that high. Yet, when you give away tax credits that can be used for closing costs the number can go up ... for a while.

Then what?

Is it possible all the pent-up demand is exhausted already? Unless today's release is an outlier, that is a reasonable explanation.

Notice what happened in the last recession. Housing never slowed at all. We also had loose credit, declining lending standards, liar loans, a credit bubble, and promotion of housing by Greenspan and Bush's "Ownership Society".

The bigger the boom, the bigger the bust.

Now we are on the backside of peak credit, with a huge, albeit declining inventory. Furthermore, declining inventory ignores pent-up foreclosures, shadow inventory (banks holding foreclosures off the market hoping prices rise), and increasing inventory in rental units.

Speaking of rental units, starts of 5-unit structures hit a new record low.

Privately Owned Housing Starts 5-Unit Structures or More



This is a recovery?

Government can continue to "stimulate housing". However, it will be at the expense of multi-unit properties, but even then, only for a while. Eventually, pent-up demand will fall to zero unless government increases the tax credit or otherwise modifies the program.

Signs are pent-up demand is reaching exhaustion already.

This is exactly the problem with all these Keynesian stimulus ideas and exactly why the only solution is to let housing prices fall to where they are genuinely affordable, where there is real, as opposed to artificial demand.

“Housing is starting to turn,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York.

Indeed it has, for the worse.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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