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Economy in Brief

Housing Starts Edge Higher But Not By Much
by Robert Brusca August 17, 2010

Housing has taken a real thumping in this cycle, a process that began well before the recession. So it is not surprising that with the recession over, housing is not simply springing back to life. It is instructive to look at the figures in the bottom two rows of the table, they show how similar the plunge and rebound has been across regions and types of housing. The figures showing the drop from the cycle max are highly comparable across regions and housing types. Yet the rebound from the lows calculations show that there has been a great deal of variation in how various regions got to this roughly similar drop point from the previous cycle peak.

The patch-work government program that provided selected benefits, restricted to first time home buyers, tried to jump start the sector and while it had some effect none of it has been lasting. Still, from the standpoint of home builders and inventory if any existing 'new homes' were able to sell was a benefit to them.

What today's report signals is that even though we are putting distance between the current data and the end of the government program - an ending that created two-sided distortions - we are not yet seeing demand for new homes mushroom.

The rise in starts in July is all multifamily gains as single family starts, the core of the sector, are off by 4.2%. Single family permits for new building fell too, but they may not be much of a harbinger for the sector.

By region the Northeast and Midwest saw some sharp increases in percentage terms (30% and 10%, respectively) but these are small regions that impart little thrust to the total in terms of its raw numbers. In the South, the biggest region for housing activity, starts fell by an outsized 6.2%. The West, a region that used to be large for new home building, was dead flat in the month.

Meanwhile, home affordability has been improving. So why are sales still lagging? Some focus attention on the ongoing problem of balance sheet adjustment. Actually there are many aspects that impinge on home financing. It's true that there is probably no other sector in the economy in which transactions depend on other transactions since most home buyers are also home sellers. That fact doubles the problem of getting a housing sale done. And, since unemployment is relatively high and house-buying often absorbs two incomes, there is another double-your-odds chance that something can throw off a housing transaction. Since most home buyers are sellers of an existing home, and since the drop in home prices has left many 'upside down' in their mortgages this may preclude some who wish to move from doing so. Moreover, if people refi'd an existing home and took money out of their house, even if they walk away and try to buy another home the IRS will dun them for taxes owed on those extracted capital gains. Then of course, prospective purchasers have to jump through the hoops that the banks put up and banks are strict. There are many ways that housing transactions are caught up in the mess of the moment.

Job creation is but another of the flies in the ointment. Even so, if job growth were to spark up next month it would take some time to bring housing back to life. At this point we are not looking for the sector to go full bore back to work but just to make a start. Job growth could be enough to get that going. But even that modest goal is still lacking.

Housing Starts/Permits By Unit Size
Analytical Comparisons (Pct. Changes-Not Compounded)
  Total One Unit 2-4 Units 5 or more
In 000's of Units Starts Permits Starts Permits Starts Permits Starts Permits
This Month:Saar 546 565 432 416 19 20 95 129
Jun.2010 537 583 451 421 5 20 81 142
May.2010 588 574 459 436 12 18 117 120
3-month avg. 557 574 447 424 12 19 98 130
1-month % chg. 1.7% -3.1% -4.2% -1.2% 280.0% 0.0% 17.3% -9.2%
3-month % chg -19.6% -7.4% -23.3% -14.4% 58.3% 17.6% -8.7% 20.6%
6-month % chg -10.8% -10.2% -15.5% -18.3% 171.4% 5.3% 1.1% 27.7%
yr/yr % chg. -7.0% -3.7% -13.6% -13.2% 26.7% 5.3% 31.9% 44.9%
Drop from Max -76.0% -75.0% -76.3% -76.9% -77.1% -81.1% -78.2% -76.1%
From Cycle Low 14.5% 8.2% 20.0% 21.3% 280.0% 25.0% 93.9% 44.9%
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