Housing Permits and Starts Drop Sharply In December

Housing starts took another nose-dive in December according to a joint release from the U.S. Census Bureau and the Department of Housing and Urban Development.

Seasonally adjusted, privately-owned housing starts were at an annual rate of 1,006,000, 14.2 percent below the revised November estimate of 1,173,000 starts and 38.2 percent lower than the December 2006 rate of 1,629,000.

According to Wall Street Journal OnLine, the magnitude of the decline surprised Wall Street. The median forecast of economists surveyed by Dow Jones Newswires was a 5.0% drop to a 1.130 million annual rate. The level of 1.006 million was the lowest since 996,000 in May 1991. 794,000 single-family homes were started in December, 2.9 percent below November's revised estimate of 818,000.

For the entire year the report estimated that 1,353,700 units were begun, a drop of 24.8 percent from the 2006 total of 1,800,900. Regionally the year-over-year change in housing starts was -14.9 percent in the Northeast, -24.7 percent in the Midwest; -25.3 percent in the South and -27.8 percent in the West.

Permits for residential construction also fell again. Privately-owned housing units authorized by building permits issued in December were at a seasonally adjusted annual rate of 1,068,000, an 8.1 percent drop from the revised November rate of 1,162,000 and 34.4 percent under the revised estimate of 1,628,000 one year earlier. Analysts had forecast that permits would drop only 2.6 percent for the month.

1,376,100 permits for housing were issued to builders in all of 2007; 25.3 percent fewer than the 1,838,900 permits issued in 2006.

Permitting was down in all regions of the country except for the Northeast which showed a very slight increase of 1.6 percent over November. Permits were 10.6 percent fewer in the Midwest, 7.8 percent in the South, and 11.6 percent in the West than in November. The year to year change was in double digits in all regions ranging from 15.3 percent in the Northeast to 27.6 percent in the South.

The data on permits and housing starts echo the latest results of the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released Wednesday. This index measures builder confidence about the single-family home market and remains virtually unchanged yet again. This is the fourth month in a row that the four part index remained stagnant as builders faced problems with large inventories and few buyers for their products.

The overall index rose a single point to 19 in January but that increase came only because the preliminary December number was revised down to 18. The index was at 19 in both October and November.

The index is based on data collected in a monthly survey of home builders which has been conducted by NAHB and Wells Fargo for the last 20 years. Builders are asked to rate their perceptions of current single-family home sales and their expectations for sales over the next six months as either good, fair, or poor; and to evaluate buyer traffic on a five-point scale from very low to very high. The three measures are calculated separately and then used to create a seasonally adjusted index where 50 is the break point between builders perception of the market as more good than poor.

The HMI has not seen anything approaching 50 for months. In January the index measuring builders' perceptions of single family sales conditions remained unchanged at 19 while the index gauging expectations over the next six months rose two points to 28. The measure of prospective buyer traffic rose one point to 14.

Regionally the South and the Midwest were a little upbeat. The overall index for the former rose three points to 23 and the latter was up two points to 17. Builders in the West, which had seen phenomenal growth in housing over the last few years, grew even gloomier, dropping five points to 13. The Northeast was unchanged at 20.

NAHB Chief Economist David Seiders noted, "The HMI has held within a narrow two-point range for the past five months, indicating that builder views of housing market conditions essentially haven't changed over that time. Builders are anticipating a time when market conditions will support an upswing in building activity - most likely in the second half of 2008."