Paper Economy - A US Real Estate Bubble Blog: New Residential Construction Report: December 2007

Thursday, January 17, 2008

New Residential Construction Report: December 2007

Today’s New Residential Construction Report continues to firmly demonstrate the intensity of the total washout conditions that now exist in the nation’s housing markets and for new residential construction showing tremendous declines on a year-over-year basis to single family permits both nationally and across every region.

Single family housing permits, the most leading of indicators, again suggests extensive weakness in future construction activity dropping 41.4% nationally as compared to December 2006.

Moreover, every region showed significant double digit declines to permits with the West declining 47.3%, the South declining 43.9%, the Midwest declining 30.4% and the Northeast declining 27.4%.

Keep in mind that these declines are coming on the back of last year’s record declines.

To illustrate the extent to which permits and starts have declined, I have created the following charts (click for larger versions) that show the percentage changes of the current values compared to the peak years of 2004 and 2005.

Notice that on each chart the line is essentially combining the year-over-year changes seen in 2005, 2006 and 2007 showing virtually every measure trending down precipitously.

Declines to single family permits have NOW ACCELERATED measurably in terms of monthly YOY declines, and the fact that we are now seeing declines of roughly 30%-40% on the back of 2006 declines should provide a an unequivocal indication that the housing markets are by no means stabilizing.

Here are the statistics outlined in today’s report:

Housing Permits

Nationally

Single family housing permits down 41.4% as compared to December 2006

Regionally

For the Northeast, single family housing down 27.4% as compared to December 2006.
For the Midwest, single family housing permits down 30.4% as compared to December 2006.
For the South, single family housing permits down 43.9% compared to December 2006.
For the West, single family housing permits down 47.3% as compared to December 2006.

Housing Starts

Nationally

Single family housing starts down 36.0% as compared to December 2006.

Regionally

For the Northeast, single family housing starts down 29.9% as compared to December 2006.
For the Midwest, single family housing starts down 29.4% as compared to December 2006.
For the South, single family housing starts down 30.0% as compared to December 2006.
For the West, single family housing starts down 54.1% as compared to December 2006.

Housing Completions

Nationally

Single family housing completions down 32.8% as compared to December 2006.

Regionally

For the Northeast, single family housing completions down 16.8% as compared to December 2006.
For the Midwest, single family housing completions down 29.8% as compared to December 2006.
For the South, single family housing completions down 38.7% as compared to December 2006.
For the West, single family housing completions down 26.5% as compared to December 2006.

Keep in mind that this particular report does NOT factor in the cancellations that have been widely reported to be occurring in new construction.

Labels: Bernanke, economy recession, Federal Reserve, housing bubble, new construction

4 Comments:

The housing starts numbers is a lagging indicator of the market and a predictor of a market upswing. A sharp decrease in starts/permits/completions means that inventory pressures are/will continue to decrease. While I agree with you that the downward trend will continue this is a necessary precurser to a turnaround.

By soxfaninny, at 10:23 AM
soxfaninny,

Keep in mind that although building is slowing significantly, inventories are still on the rise since sales have been slowing significantly as well.

The key here is that the read of permits, the most leading indicator, is indicating housing construction at levels equivalent to 1990.

This is a tremendous reversal to say the least and may in fact foretell further declines to all aspects of the current housing and economic debacle.

By SoldAtTheTop, at 11:11 AM
Your forecast may be correct but at the risk of being a glass half full guy I look at the dramatic reduction in starts/permits and completions in a good way. The ultimate goal is to reverse the downward pricing trend. The only way to do that is to bring supply and demand into balance. Once that occurs pent up demand will push prices higher. A drastic reduction in starts/permits/completion will aid in that process. What will also help is the number of what I call "want to sell" owners pulling their units off the market until we are left with only "have to sell" units. When the "have to sell" units are out of the market pricing power will return to sellers." I would also venture that we will see rents rising in most if not all markets. This will flush the temporary renters out of the market who are simply waiting for buying to once again be cheaper than renting after taxes. Just my humble opinions.

By soxfaninny, at 12:21 PM
This is especially bad in the West (3rd graph down). It looks like permits are down more than 70% from the Sept '05 peak.

I don't know if you have numbers for condos, but I assume they are even worse. And I hope commercial building is better.

And the West is a big place. Any idea which cities or counties are suffering most?

I'm surprised the Northeast is doing so well relatively speaking. The price bubble there was as bad as anywhere, at least in the big cities. Maybe building never reached a high level (is the region was slowly losing overall population), or maybe the correction started earlier? Just initial guesses.

By Dagger, at 12:28 PM