Housing Starts, Permits Fall Again But Builder Confidence Stabilizes

Housing starts took another dive in November, falling another 3.7 percent from the revised October estimate of 1,232,000 starts. Even worse, the seasonally adjusted annual November rate of 1,187,000 starts is 24.2 percent below the 1,565,000 annualized rate of residential construction initiated in November 2006.

This information came Tuesday from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development in their monthly New Residential Construction report.

Single family house starts fell even more than the overall residential start rate; 829,000 homes were started in November, down 5.4 percent from October. This is the lowest level of single family housing starts since April. 1991. Construction of buildings with five or more units was up 4.4 percent for an annualized number of 332,000.

The Northeast region was hardest hit with starts down 16.3 percent from a month earlier (single family starts were off by 20 percent) probably due to unseasonably wet weather in the region. The South saw a slight increase of 1/3 of one percent for all housing and 5.4 percent for single family starts.

All four regions were down double digits from one year earlier with new single family construction off well over a third in the South and West.

The outlook for the short-term doesn't look much better as the rate of permits issued for future residential construction also fell 1.5 percent from last month to a seasonally adjusted annual rate of 1,152,000 and was off 24.6 percent from November, 2006. The recent figures were the lowest since June of 1991.

However, the construction backlog may be clearing. The number of units authorized by permits but for which construction has not started fell 3.7 percent to 171,000 in November. This is 12 percent lower than the figure for November, 2006.

The president of the National Association of Home Builders (NAHB) Brian Catalde commented on the report that "Builders are doing exactly the right thing by slowing production and allowing demand for new homes to catch up with supply. Working down the inventory of unsold homes is key to returning the housing market to greater health and balance."

The NAHB also released its monthly report on builder confidence this week. The NAHB/Wells Fargo Housing Market Index (HMI) was unchanged from November at a score of 19 - the lowest reading since the survey began in January 1985.

The HMI is constructed from answers from home builders to a set of questions asking them to rate their perceptions of current single-family home sales and their expectations for sales over the next six months as good, fair, or poor and to rate the current traffic of prospective buyers as high to very high, average, or low to very low. Each set of responses is rated on a scale from one to 100 and the HMI is a composite of the other three scores. A score of less than 50 in the HMI and for each of the other categories is an indication that more builders view sales conditions as poor than as good.

In December the index gauging current sales conditions was up one point to 19 and the index of expectations for the next six months improved two points to 26. However, the current buyer traffic was rated at 14, down three points since last month.

In releasing the Index President Catalde applauded the Senate's recent approval of FHA reform and of a change in the tax code which removed the IRS's ability to tax forgiven debt as regular income after a foreclosure or loan workout and urged the Congress to move quickly to get these bills as well as oversight reform for Fannie Mae and Freddie Mac into law.