October Housing Starts
Updated 19-Nov-09 19:26 ET
Highlights
- The talk that housing starts were stabilizing hit a snag in October as new housing starts plummeted 10.6% to 529,000 units from 592,000. The consensus forecasted an increase in starts to 600,000.
- The details in the data don't look pretty.
- Single family starts fell 6.8% to 476,000 and is at its lowest level since May.
- Multi-family starts fell a whopping 34.5% as only 53,000 new units were started. Multi-family starts have never been this low since the index was created in 1959.
- Building permits were higher than housing starts, but still declined 4.0% to 552,000. Not all permits are used to build a house and the drop from September could be seen as an indicator that starts in November could continue to decline.
- Total homes currently under construction fell 3.4% from its previous historical low of 580,000 in September to 560,000 units in October.
- Housing completions increased 1.9% to 740,000 units.
Key Factors
- It is difficult to analyze this month's data. On one hand, it's easy to state that builders realized that the housing market continues to be oversaturated with excess supply and builders are again making drastic cutbacks. However, while single family starts declined a substantial amount, the levels are still over 100,000 higher than they were at January's lows. If builders truly wanted to pull back from the market, it would be expected that single family starts would fall by a much greater percentage.
- It could be that builders were worried about the possible end to the first-time homebuyers tax credit. Without the additional stimulus money, many potential buyers would be priced out of the market. In October there was still a hot debate in Congress on whether or not to extend the credit. Even though it eventually passed, builders may have held up on new starts until they got a better understanding of what was going to happen on the fiscal side.
- It's tougher to grasp why multi-family units fell to new historic lows. All economic fundamentals suggest heightened demand for rental units over the next several years, which would obviously act as an incentive for building multi-family properties. However, as more single-family homes enter foreclosure, these homes are becoming very attractive to investors to be used as rental properties. Many families would prefer to live in a single family home rather than an apartment building.
- The big question now is: Where do starts go from here? At the beginning of the year, we thought housing starts would stay around 500,000 through the middle of 2010. Incentives through fiscal policy and quantitative easing propped up the real estate market and helped push starts to between 580,000 and 590,000 units. If the decline in October was due to uncertainty regarding the end date of the first-time homebuyer tax credit, then starts should rebound back to the 580,000 to 590,000 unit range. If the decline is due to oversaturation in the market, starts could fall precipitously back to 500,000 units.
Big Picture
- Housing starts are at extremely low levels and the outlook is not likely to improve any time soon due to high levels of inventories of unsold new homes. An uptrend in construction will require an improvement in employment and income, and then take some time as inventories need to be reduced. Government action to boost mortgage seems to have helped, and starts have begun to stabilize.
| Category |
OCT |
SEP |
AUG |
JUL |
JUN |
| Starts |
529K |
592K |
581K |
593K |
590K |
| 1 Unit |
476K |
511K |
481K |
506K |
478K |
| Multi Units |
53K |
81K |
100K |
87K |
112K |
| Permits |
552K |
575K |
580K |
564K |
570K |
