Post by wvhsparent on Feb 17, 2007 8:11:19 GMT -6
U.S. housing starts plummet
Pace falls to slowest in almost 10 years as builders pull back
By Azam Ahmed
Tribune staff reporter
Published February 17, 2007
With swollen inventories of unsold homes clogging the housing market, buyers have sent a clear message that the heady days of quick-flip real estate are over for now. It looks as if home builders got the message last month.
In the latest blow for the beleaguered market, the Commerce Department said Friday that housing starts plummeted 14.3 percent in January from the month before, to an annual rate of 1.408 million, the slowest pace since August 1997.
Starts dropped nearly 38 percent from a year ago as inventories of unsold houses mounted and frigid weather delayed new construction projects.
Economists attributed the stagnant data to the massive inventory of 3.5 million unsold homes on the market as of December.
"Builders have been cutting back on starts of new units to bring supply and demand back into balance," said Dave Seiders, chief economist for the National Association of Home Builders.
The West suffered the worst drop, with starts tumbling 28.5 percent compared with December. In the Midwest starts fell 15.2 percent, the weakest showing since January 1991, while they decreased 11.8 percent in the South. They rose 8.9 percent in the Northeast.
Economists said an unusually warm December helped increase housing activity that might have otherwise been stretched into later winter months, and they cited the weather in January as the reason starts rose in the Northeast while the other regions were being pummeled. "A lot of miserable weather hit the East late in January and into February, whereas it visited the western part of the country in the earlier part of the month before it moved east," said Richard DeKaser, chief economist at National City Corp.
Single-family home starts slid 11.2 percent last month, the weakest since August 1997, while work on multifamily homes, such as townhouses, plunged 24.1 percent. Building permits declined 2.8 percent, to a pace well below forecasts. Permits have dropped in 11 of the last 12 months.
And though surveys of home builders show that their sentiment about the market is near an eight-month high, "the data remind us that the housing market remains the number one risk to the economic outlook," according to Scott Anderson, senior economist at Wells Fargo & Co.
However, Erik Hurst, a professor of economics at the University of Chicago Graduate School of Business, said that the cause is the normal ebb and flow of supply and demand. When the housing boom began, he said, there was an increase in demand that produced a shortage and caused prices to rise. Now, builders have caught up with that demand and have stopped making as many homes as inventories have increased.
"You have to remember, there is a whole segment of the market that is much better off with lower prices, like renters and home buyers," he said. "The effect on economic growth will be marginal at best."
Hurst said that although it was commonly thought last year that a slowdown in housing would cause a recession, economic growth in the fourth quarter of 2006 exceeded expectations. He said that growth might slow "marginally" because of the problems in the construction sector but that the majority of the economy was protected from the housing market.
"It's not like all those cranes are going to sit idle," he said, referring to machinery used in new construction.
The starts data added to the dismal housing news this week. On Thursday the National Association of Realtors said sales of existing homes plummeted more than 10 percent in the fourth quarter compared with the year-ago period. The median price of a single-family home fell 2.7 percent.
"I think we're still in an environment of significantly weakened housing activity in general," said DeKaser.
The vacancy rate, a measure of how many homes in the nation are unoccupied, was 2.7 percent in the final quarter of 2006, the highest level since the U.S. Census Bureau began compiling the data in 1956. This suggests that builders will need to continue to maintain low starts to get rid of some of the excess inventory.
"The problem is that it will take many months to get rid of those numbers, and the more aggressive builders cut back on building, the faster these numbers will come down," said Wells Fargo's Anderson.
- - -
11.2%: Amount single-family home starts fell last month
24.1%: Amount multifamily-home starts, such as townhomes, dropped
2.8%: Decline in building permits
----------
aahmed@tribune.com
Pace falls to slowest in almost 10 years as builders pull back
By Azam Ahmed
Tribune staff reporter
Published February 17, 2007
With swollen inventories of unsold homes clogging the housing market, buyers have sent a clear message that the heady days of quick-flip real estate are over for now. It looks as if home builders got the message last month.
In the latest blow for the beleaguered market, the Commerce Department said Friday that housing starts plummeted 14.3 percent in January from the month before, to an annual rate of 1.408 million, the slowest pace since August 1997.
Starts dropped nearly 38 percent from a year ago as inventories of unsold houses mounted and frigid weather delayed new construction projects.
Economists attributed the stagnant data to the massive inventory of 3.5 million unsold homes on the market as of December.
"Builders have been cutting back on starts of new units to bring supply and demand back into balance," said Dave Seiders, chief economist for the National Association of Home Builders.
The West suffered the worst drop, with starts tumbling 28.5 percent compared with December. In the Midwest starts fell 15.2 percent, the weakest showing since January 1991, while they decreased 11.8 percent in the South. They rose 8.9 percent in the Northeast.
Economists said an unusually warm December helped increase housing activity that might have otherwise been stretched into later winter months, and they cited the weather in January as the reason starts rose in the Northeast while the other regions were being pummeled. "A lot of miserable weather hit the East late in January and into February, whereas it visited the western part of the country in the earlier part of the month before it moved east," said Richard DeKaser, chief economist at National City Corp.
Single-family home starts slid 11.2 percent last month, the weakest since August 1997, while work on multifamily homes, such as townhouses, plunged 24.1 percent. Building permits declined 2.8 percent, to a pace well below forecasts. Permits have dropped in 11 of the last 12 months.
And though surveys of home builders show that their sentiment about the market is near an eight-month high, "the data remind us that the housing market remains the number one risk to the economic outlook," according to Scott Anderson, senior economist at Wells Fargo & Co.
However, Erik Hurst, a professor of economics at the University of Chicago Graduate School of Business, said that the cause is the normal ebb and flow of supply and demand. When the housing boom began, he said, there was an increase in demand that produced a shortage and caused prices to rise. Now, builders have caught up with that demand and have stopped making as many homes as inventories have increased.
"You have to remember, there is a whole segment of the market that is much better off with lower prices, like renters and home buyers," he said. "The effect on economic growth will be marginal at best."
Hurst said that although it was commonly thought last year that a slowdown in housing would cause a recession, economic growth in the fourth quarter of 2006 exceeded expectations. He said that growth might slow "marginally" because of the problems in the construction sector but that the majority of the economy was protected from the housing market.
"It's not like all those cranes are going to sit idle," he said, referring to machinery used in new construction.
The starts data added to the dismal housing news this week. On Thursday the National Association of Realtors said sales of existing homes plummeted more than 10 percent in the fourth quarter compared with the year-ago period. The median price of a single-family home fell 2.7 percent.
"I think we're still in an environment of significantly weakened housing activity in general," said DeKaser.
The vacancy rate, a measure of how many homes in the nation are unoccupied, was 2.7 percent in the final quarter of 2006, the highest level since the U.S. Census Bureau began compiling the data in 1956. This suggests that builders will need to continue to maintain low starts to get rid of some of the excess inventory.
"The problem is that it will take many months to get rid of those numbers, and the more aggressive builders cut back on building, the faster these numbers will come down," said Wells Fargo's Anderson.
- - -
11.2%: Amount single-family home starts fell last month
24.1%: Amount multifamily-home starts, such as townhomes, dropped
2.8%: Decline in building permits
----------
aahmed@tribune.com