Housing Starts – Data Are Self Explanatory, Need We Say More?
Starts of new homes fell 14.6% in October to an annual rate of 1.486 million units. Estimates of housing starts in September and August were revised down. In contrast to the euphoria after the gain in housing starts during September, there is no doubt the October number is more representative of the underlying trend in the housing market.
On a year-to-year basis, starts of new homes are down 27.2%, the largest since March 1991. Starts of new homes rose in Northeast (+31.0%) but dropped in the Midwest (-11.7%), South (-26.4%), and West (-2.1%).
Permits for the construction of new homes fell 6.3% to an annual rate of 1.535 million units in October, the lowest since level since December 1997 and it also the ninth consecutive monthly decline in extensions of permits.
Is this the bottom for construction of new homes? Unfortunately, there is evidence that suggests that additional declines in the construction of new homes cannot be ruled out. As chart 4 indicates, there was a 6.4-month supply of new homes at sales pace of 2006 in the market, up from an average of a 4.4-month supply in 2005.
Alternatively, the number of homes for sale averaged 556,000 in the first nine months of year compared with a 457,000 average in 2005 and an average of 378,000 during 2002-2005. Anecdotal evidence of cancellations of contracts is growing and home builders have lowered their forecasts of earnings in recent months. Based on this information, it is appropriate to expect additional weakness in the construction of new homes.
