Housing Starts At 10-Yr. Lows: Cue The Tumbleweeds

A short time ago, the Census Bureau released residential construction statistics for the month of July - following yesterday's 16-year low in the National Association of Home Builders Housing Market Index, housing starts fell to a 10-year low.

Housing starts fell 6.1 percent to a seasonally adjusted annualized rate of 1.381 million, following last month's 2.1 percent increase. This is the lowest level since 1.355 million homes were started in January of 1997, however, it is not adjusted for the increase in population.

Just as current foreclosure statistics sound worse than they really are on a per capita basis when compared to historical data, the ten-year low in housing starts really is worse than reported.

Permits for new construction dropped 2.8 percent to an annual rate of 1.373 million units, following June's total of 1.413 million. The June data for both housing starts and permits were revised up slightly, a break from the pattern established over the last year or so.

Despite many calls for a bottom after each uptick over the last year, credit tightening and growing inventory have led to even further deterioration in the homebuilding industry. With growing inventory from foreclosures now hitting the market and the beginning of price capitulation for Bank Owned real estate, there seems to be little hope for any sort of rebound in homebuilding anytime soon.

In somewhat of an ironic twist, to some degree at least, homebuilders are now competing with banks that are dumping foreclosed homes that were built just a year or two ago.

Why the irony?

Because, over the last year or so, homeowners have complained about having to compete against homebuilders who were lowering prices or adding huge incentives for the next phase of construction - now homebuilders have to compete with banks and the poor homeowner looking to sell must compete against both homebuilders and banks.

As was the case in states such as California during much of the mid-1990s, get ready to look at half-finished housing developments for the next few years or so as builders begin to halt construction leaving swaths of empty lots next to swaths of brand new, unsold homes.

Cue the tumbleweeds.

Comments

[Lee Carlson]

I think a lot of R.E. Sales people , myself included, saw this coming, but who are we to tell people they are paying too much ? It may seem like the right thing to do but if we didn't sell them the home, it's dead certain that another salesman would, and tell me what person in his right mind is going to turn down a commission. ?
In fact, one has to remember that when you take a listing or are working for a builder,..you have a legal requirement to get the highest price possible.
The real problem is that people,..(buyers and investors ) were on a buying binge, regardless of cost thinking that they would just place the property right back on the market for a higher price. I could watch it happen, and buyers failed to do the math,...return on investment ???
Buyers and especially investors, must start learning to figure their return on investment,..the risk,...
But unfortunately, they don't,..at least not so far, They have a "herd" mentality,...follow the leader, even if it doesn't make sense. LC