Condo starts helped to increase the annual rate for housing starts by 3% to 1.229. They were expected to fall to 1.17 from the 1.191 million in September, so that's good news. While single family home starts did drop to an 884,000 annual rate, which is the lowest rate in 16 years, multifamily home starts rose to a 345,000 annual rate. Don't get too excited though. Multifamily homes declined 36% in September, so this 44% increase is primarily because of delays in starts from September that spilled over into October.
Richard Moody, Chief Economist for Mission Residential, prefers to look at the six month moving average to see what's really happening in housing because that tends to smooth out the ups and downs of the market. The six-month moving average for single family homes is down to its lowest point since October 1992. He added, "This is not, however, the bottom, or even close to it - total housing permits fell by 4.6%, while single family permits dropped by 6.1%. This brings the moving average for single family permits to its lowest level since August 1995.
Why do permits matter? If builders aren't getting permits that means they won't be able to build on that land in the future. Builders are seeking less permits because they don't see a demand for more new homes. Right now they are building just on the permits already in place, if they are building at all. That is good news for people who own existing homes because the number of news homes in competition will drop as the current inventory falls.
Moody said, "By now, the issues facing the housing market are well documented. Swollen inventories of unsold homes, which at current sales rates would take almost 10 months to work off but will surely worsen due to looming foreclosures, tighter lending standards, and a mortgage credit squeeze due largely to a dried up secondary market, all point to further declines in construction over coming months."
Bloomberg reported that starts were up in three areas of the country: Midwest saw a 21% jump in starts, the Northeast construction rose 8.5% and starts were up 5.8% in the West. In the South starts were down by 4.6%.
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Reader Comments (Page 1 of 1)
11-20-2007 @ 5:46PM
ALASTAIR said...
Now may be a good time to start dollar cost averaging into building stocks and mortgage REITs, but don't be greedy. Housing in the USA has a very bumpy ride ahead of it with looming credit crises on the horizon, but this may be the time to put one's big toe into the water just the same.
11-20-2007 @ 2:52PM
william lindblad said...
In this type of market permit data is merly a gauge of what was already under contracts or in some stage of construction. Contracts meaning those issued to the sub-contractors and suppliers and not contract of sale. Moedy's mention of a ten month inventory is both optimistic and vague. Is he referring to the total market, or just new construction. To be sure, there is money sitting on the sidelines waiting for opportunity in bargain prices, but these are people with cash and excellent credit, they are also a minority and most of the purchases will be in the after market where sellers have more flexibility in price. The ones that I know are also very savvy. One does not plunk down 150,000 on a condo that was selling for 280,000 unless that building has at least 80% occupancy. You need to spread the maintenance fees over the amount of owners. What happens when the major assessment fees for reno work come in 10 years later? You get killed in price or the building falls into disrepair. In this case new construction is at a major disadvantage on this reason alone. Another factor is taxes. Pre-2000 construction, no matter what state they are in, was taxed at that rate and some states have year to year rate caps or other means of real estate tax control on residential properties. Considering the price esculation, these sellers have a lot of bargaining power and these dwelling are sure to be first on the sale list. It does not take rocket science to figure out who is low man on the totem pole.