Housing Starts Slide to Record Low
I’ve been meaning to get to this: Housing starts freefell earlier this week, plummeting 16.8% month-over-month to an annualized rate of 466K units.
Multi-family units were down 28% to a 16-year low at 119K; Single-family starts were down 12% M/M to a new historic low of 347K. This marks the third straight month of new lows in single-family construction.
Building is now running below underlying demand of ~500K/month, but the sector is still plagued with a significant inventory overhang of +1 million units.
Of course, ongoing layoffs, stagnant incomes, and an ongoing recession does not bode well for Home Builders over the next 18 months. There may be a few short term trades here and there — but they are just trades.
As to starts, now THATS an ugly chart:
Hat tip RM, via Census
De.li.cious
Digg this!
Technorati
Reddit
Newsvine
Stumble
Facebook
February 19th, 2009 at 11:47 am
I once skiied down a slope like that out in Colorado. Difference is, in Colorado they have a base where you can get back on the chair-lift. Not so sure about housing. At least any time soon. They can blow these government programs out their you know what(s)!
Off Topic: Would someone please tell Larry Kudlow that gold is not only an inflation play. The word “uncertainty” comes to mind.
February 19th, 2009 at 11:48 am
Buy now or be priced out forever! Real estate NEVER goes down!
BTW: Whatever happened to Lawrence Yun?
February 19th, 2009 at 12:07 pm
awesome in its magnitude
We are living and making history. May we all have the grace to live to tell about it
February 19th, 2009 at 12:07 pm
That looks like it would be a wicked fun roller coaster ride…
(I wonder when the RC Tycoon emulation of Case Shiller will get updated?!)
And yeah, FunYun has been FunMum of late :p
February 19th, 2009 at 12:28 pm
Housing starts could stay at Zero for 24 months w/o negatively straining the supply of Shelter..
Think about the Acres of CRE that Retailers are abandoning, to say nothing of the, still, Mountains, of Containers at the majority of East/West trade Ports..
If we don’t Waste, let alone Grow, another stick of mono-cultured, Plantation-raised, genetically-engineered Southern Yellow Pine on our, heretofore, consumption-stoking SFH ‘Blueprints’, we should consider ourselves fortunate..
ICF, http://www.forms.org , is a better story, than anything wrapped with Tyvek, no offense DuPont..
February 19th, 2009 at 12:35 pm
Housing is a major reason this market is going much lower. We are right now below the Nov closing low on the Dow, with the 21 day MA on total put/call near 3 year LOWS. If I had to write a scenario for a huge decline, that would be it.
As for Stanford, this possible Madoff is fascinating. Madoff flew under the radar…this guy was sponsoring PGA events. I think the client list will be astounding.
February 19th, 2009 at 12:37 pm
Also noticed, VIX DOWN 4% despite market being lower…are you kidding me?
February 19th, 2009 at 12:47 pm
What is really amazing is all the home owners that are using this ski slide as justification to keep their homes. Just flipping thru news channels last night, I hit upon several people calling in that wanted to know how to keep their homes. In all the cases, they are not working and have no income. One guy had two houses with two mortgages and was calling in to see if he could qualify for Obama’s plan to help home owners.
What are people thinking that they think that they can remain in a home with no income??
February 19th, 2009 at 12:58 pm
“Of course, ongoing layoffs, stagnant incomes, and an ongoing recession does not bode well for Home Builders over the next 18 months.”
Seems to me homebuilders still don’t get it. I look at the general area I live in and the new homes getting built. The Toll Bros. neighborhoods are 600k plus homes, in down-town Wilmington, DE they built tons of new condo units that are all 325k and above, no one wants to live where they built them. Most of them are sitting empty and all the retailers that were on the first floor decided not to move in either.
Barry,
What do you think about this data point and thesis that I read?:
There are apprx 130 million homes in the US according to the Census Bureau. Home builders were starting houses at a 550k annualized rate in December. (Now of course, we know this is a lot lower) In other words, at the current pace of housing starts, it would take 236 years to replace all of the homes in the US.
to put this into perspective, homes are normally built at a pace that would replace the existing stock of houses every 75 years. If we got back to the normal replacement rate housting starts will have to go up to 1.75 million.
Just curious what you think about this, seems to me this still all gets trumped by the simple fact that homes can’t be “replaced” when buyers can’t afford to replace them. Further, it doesn’t mention the inventory problem.
I was also wondering last night about this foreclosure plan and how it could really back-fire. If we put an artificial floor on home prices and then we do in fact get nasty inflation we could be looking at an absolute nightmare situation for consumers The plan could work for a few years and blow up in our face sometime later. If inflation kicks will it apply to wages as well, or inflation adjust will wages continue to trend down, if we get really bad inflation that means incomes will more than likely not keep pace with inflation, we can’t fuel consumption anymore with debt and consumers in general have no savings.
When you target homeowners that are paying 30% of Gross Income towards a mortgage and you start to think about the other expenses they have, taxes and then especially if things like food and energy inflate up again they will end up defaulting on the loan anyway and they have no extra “spending” money for all the crap we sell here.
I find it odd as well that lately we hear Bernanke coming out and talking about how there is no near term threat of inflation. Seems to me you bet against everything he says and that works well.
February 19th, 2009 at 1:03 pm
Rick Santelli ranting about mortgage bailouts:
http://www.calculatedriskblog.com/2009/02/rick-santelli-chicago-tea-party-in-july.html
February 19th, 2009 at 1:28 pm
@karen: that was definitely a rant. Loved it. Bingo.
We are witnessing something very strange. Very strange. Perhaps a cleansing. Perhaps a really bad sign.
Who knows.
February 19th, 2009 at 1:43 pm
I like Santelli but how does he square that rant with the recent/ongoing bailout of his parent company, you know the ones who write his checks, GE? Someone should ask him……..
February 19th, 2009 at 1:49 pm
Off Topic: BR, I have no other venue to the media, so I’ll ask you, what ever happened to Paul Volker? Did he have a heart attack after sizing the problem up? Seems strange, that no one even mentions him anymore? Did I miss something?
February 19th, 2009 at 1:56 pm
http://www.spanishpropertyinsight.com/buff/2009/02/biggest-developers-in-spain-start-just-135-properties-in-last-quarter-of-2008/
This from CR…but we are still ahead of Spain…
February 19th, 2009 at 2:03 pm
“If we don’t Waste, let alone Grow, another stick of mono-cultured, Plantation-raised, genetically-engineered Southern Yellow Pine on our, heretofore, consumption-stoking SFH ‘Blueprints’, we should consider ourselves fortunate..”
That was a good rant. Agreed. But the essence of meaning for the US is ever-upward economic growth. Even Southern Yellow Pine (which is hideously ugly btw–I live where they grow it) can’t grow to the sky. What then? Does an organism have to grow or die, as it seems we humans believe? Or can it reach stasis and still survive? That’s the “big” Big Picture question it seems.
In the meantime, the housing starts collapse is a sign that all the king’s horses and all the king’s men can’t put Humpty back together again, which bodes well for reality, if not for Humpty. He shouldn’t have anyhow been sitting on that cheap-money wall of illusion to start with.
February 19th, 2009 at 2:10 pm
@Steve Barry Says: February 19th, 2009 at 12:37 pm
Also noticed, VIX DOWN 4% despite market being lower…are you kidding me?
Saw that too. Puzzling isn’t it?
February 19th, 2009 at 2:28 pm
Saw that Rick Santelli rant. Sometimes he makes valid points but saying he read “Atlas Shrugged” and believed the economic bullshit of a third rate writer of turgid novels just made me shrug my head.
February 19th, 2009 at 2:35 pm
Er, sorry that’s shrugged my shoulders. Hey maybe I can be Atlas.
February 19th, 2009 at 2:48 pm
When I check my mail each day, seems I’m getting just as many credit card apllications as ever…maybe even more.
February 19th, 2009 at 2:52 pm
Speaking of credit, GE almost sporting a 9 handle. Just above $10, barely.
February 19th, 2009 at 2:56 pm
Steve Barry,
I get more credit applications lately than I did last year. Noticed the same thing. I also get a letter from lots of banks about refi’s and yesterday when I got home there was a flyer in my front screen door about someone that wanted to buy my home so I could get a bigger house.
February 19th, 2009 at 3:02 pm
In case it hasn’t been posted yet:
Rick Santelli’s Chicago Tea Party:
http://www.cnbc.com/id/15840232?video=1039849853
Made of awesomesauce.
February 19th, 2009 at 3:09 pm
Now the Big O is going to save us money by hightening energy cost! Why this market isn’t at 400 s&p is a good question. The fact is we are headed there!
February 19th, 2009 at 3:16 pm
ben,
That’s what I suspected…we can’t have a bottom till they stop pushing credit. Watch for a Dow freefall last half hour…put/calls are ridiculously complacent.
February 19th, 2009 at 3:37 pm
We need that line to break through the bottom of the chart i.e. let’s use some of the stimulus money to tear down some of the excess housing!! It would put people to work at the same time.
February 19th, 2009 at 4:01 pm
Steve,
Do you know when that chart you have been using on debt/gdp gets updated? I think last I saw that it was as of 9/30/08, I’m interested to see where we ended the year. Where did you find that chart?
For all the talk about people saving money now I wonder how much it is getting offset by those that are unemployed going into new debt. That seems to be getting signaled by all the credit card defaults.
February 19th, 2009 at 4:02 pm
New closing lows for Dow and Dow transports…that’s called something, I recall…oh yeah…SELL!!!!!!!!!!
February 19th, 2009 at 4:07 pm
@Ben
I update the chart myself, using total credit from the fed’s website and annualized GDP. The next release of total credit is March 12, for data as of 12/31/08.
http://www.federalreserve.gov/releases/z1/
http://www.federalreserve.gov/releases/z1/Current/accessible/l1.htm
My last calculation was Total Credit of 51.8 T and GDP of 14.42 T, or credit/GDP of 359%. I has yet to decline for a quarter, but growth is slowing. It has to contract so much, I shudder to think of the consequences.
February 19th, 2009 at 4:10 pm
These are incredible numbers. I’m fairly familiar with the housing market because of connections with the equipment business over the years. 900,000 starts was always the definition of a awful homes market and now its 665,000 and on a population that’s now at 305 million. The good news is we’ve cut by two thirds roughly the new inventory being added annually to the housing stock.
February 19th, 2009 at 4:20 pm
thanks steve.
February 19th, 2009 at 4:22 pm
steve,
would it even need to contract on the debt side to make the ratio worse, we know gdp is going lower.
Seems to me that’s a lock at our current pace to be around 500% by the end of Q3 2009. That’s just no-man’s land then.
February 19th, 2009 at 4:41 pm
Santelli’s got a point, except he leaves out the mortgage-interest deduction that all his buddies on the floor presumably take. Why should renters subsidize all of Rick’s mob?
It’s social engineering and everybody knows it — even Kudlow and the Reaganbots.
Paul Kedrosky actually brought this up on Power Lunch. At last, somebody with some balls. Of course he’s surrounded by the brain-dead team of MCC, Melissa Stepford Wife, and L is for Loser Kneale. What a team of parrots…not an original thought amongst them. Not a chance in that setting since Bill Griffeth was out, since he’s among the few on CNBC with a spark of intellect.
Home ownership is dead as a ‘rock solid’ investment, much less as “The American Dream” unless by that you mean holding an illiquid, depreciating asset. It’s a dwelling. Full stop.
Mobility is the key. Encouraging home buying is perverse if you actually want people to go where the jobs are. The average house in Detroit is apparently priced around $15K. Wonder why?
Elimination of the mortgage interest deduction was near the top of the list of the BUSH tax reform commission. Of course nothing happened because the real estate lobby, the construction lobby, the banks, etc. will ensure that the deduction stands.
We can’t handle the truth.
February 19th, 2009 at 5:01 pm
DC Says:
February 19th, 2009 at 4:41 pm
“It’s social engineering and everybody knows it — even Kudlow and the Reaganbots.”
It is social engineering but all social engineering is not necessarily bad. The GI bill for example. On balance encouraging people to purchase their own homes is probably a net plus in social and economic terms. I’m sure a house was the glue that’s made a lot of people think twice about divorce, one of the main destroyers of capital. And as someone once famously pointed out “who ever washed a rental car” so it’s probably contributed to neighborhood ambience. It’s also the case that if you invested in rental property and bought at the right price so that the deal pencilled from the get go, it hasn’t proved that bad a bet over the last thirty years as I can attest to from personal experience. At least you are in control of your own destiny. Either way the deduction is not going away anytime soon……Santelli was idiotically frat boy grandstanding.
February 19th, 2009 at 5:09 pm
A few comments.
1) Why did we collectively go on a manic housing buildout on the ‘eve’ of the retirement of our population’s largest cohort? Who in the heck was going to buy all these homes? Our population is only growing through immigration, and many of them ‘double up’, so to speak.
2) Why do the superstructures of our economy have to be violently manipulated in order to make them ‘work’? It’s as if our car has broken down on the side of the highway and we are pouring gas all over it, removing the essential pieces, smashing it with sledgehammers all the while calling out “WTF? Why won’t this thing go?”
3) Why do we think that debt can do what only work and innovation can?
Personally, I blame H. R. PuffinStuff.
February 19th, 2009 at 5:16 pm
@ DC
I couldn’t agree more. I take the interest deduction that is allowed- however I would have bought the house with or without the deduction. The government shouldn’t be in the business of promoting ownsership vs renting- that is personal decision that gets skewed by the “real estate professionals” who promote the tax advantage of ownership. Additonally, interest deductions promote people buying a bigger house than they may otherwise so they can maximize their deduction. In my opinion, interest should not be deductible unless it is the result of financing for something productive.
February 19th, 2009 at 5:24 pm
The average house in Detroit is apparently priced around $15K.
cf. Millinocket, Maine.
Also. Growth for the sake of growth is what cancer cells do.
February 19th, 2009 at 5:28 pm
DC,
That is a good point you make. I’m like ahab and take the interest deduction I’m allowed but I would have bought my house with or without the deduction. I don’t agree though that people buy a bigger house so they get a bigger deduction, that’s ridiculous. Most people in this country have no clue how taxes work and the last thing on someone’s mind when they are looking at a bigger house, “is how much more of a deduction will I get for this.” they are thinking more along the lines of where the tv will go, what color to paint the rooms and where they will put the couch.
To take santelli’s side though, he isn’t bringing that up because the people that now get bailed out from foreclosure are taking the mortgage deduction too.
February 19th, 2009 at 5:44 pm
“they are thinking more along the lines of where the tv will go, what color to paint the rooms and where they will put the couch.”
….Duh. Who ever decided the house they were going to buy on the basis of the tax deduction they were going to get. Nevertheless it encourages ownership which for most people is a good thing. It forces them to save if nothing else. Too many people here assume a perfect world in which everyone makes rational economic decisions. They don’t. All that said I’m for encouraging home ownership..it encourages thrift and social responsibility. Hard to quantify but very real nonetheless.
February 19th, 2009 at 5:59 pm
In regard to the VIX:
It’s about boredom now, not fear.; i.e. market syncope. A significant part of the investing public now sees wall street as a conduit for asset stripping rather than equity enhancing asset allocation. Devesting people of assets doesn’t attract investing capital.
In regard to Santelli:
17,000 rich American tax dodgers with numbered Swiss acounts is the real story. Santelli is probably one of them so he pounds the table about a tea party and mortgage welfare queens. I own my own home and I say the homeless unemployed should be PAID by HUD to be “house stewards” of foreclosed houses for a 5 year period. This would give them an opportunity to contribute to the economy rather than turn into wards of the state at a prison. At any rate, the public outrage at 17,000 millionares crapping all over America must be suppressed with some noise. It’s how it works with these sick fucks.
In regard to housing inventory and cost:
The demand for housing is a function of wages which are a function of jobs in normal times. When capital gains were exempted from taxation on home sales and low interest rates combined with high liquidity, times ceased to be normal. Now the only distorting factor is the free ride on home sale capital gains. The other factors make that moot because of demand destruction.
So when will demand return? When we have stable employment, government funded health care for all and housing is sold for what they cost to build plus a small profit and land values return to earth.
To really, really see what a house is actually worth, look at the cost per square foot of a modern manufactured or modular home. It is about $35 a square foot. Add to that the land and you have a realistic price with a healthy market of demand.
Otherwise, you can sit in your house and continue your elitist pipe dream. Or you can continue with financial innovation like those Pennsylvania judges who were paid millions in “fees” (the police, bless their soul, call them bribes) to incarcerate juviniles for petty offenses in private jails. The same “business model” can be used for house squatters. Hey, predators, it makes money don’t it? Santelli would love it.
February 19th, 2009 at 6:00 pm
WOW,
More sound advice over @ thestreet:
Stockpickr.com founder James Altucher tells TSC’s Debra Borchardt that cash is king in this recession and to go borrow – but stash that money in the bank.
The headline, and it’s a video, is Borrow Against Your Home.
unreal
February 19th, 2009 at 6:13 pm
PS
THe US Government just ADDED 50,000 more names of rich tax dodgers to the 17,000 with numbered accounts in Swiss UBS bank. Hot Damn! I do believe the government finally figured out where to get some money. LOL
February 19th, 2009 at 6:41 pm
WASHINGTON (Feb. 19) -A government lawsuit Thursday seeks the identities of tens of thousands of possible U.S. tax cheats who hid billions of dollars in assets at the Swiss-based bank UBS AG. A defiant Swiss president pledged to maintain his country’s bank secrecy laws.
In the suit filed in Miami, the Obama administration wants UBS to turn over information on as many as 52,000 U.S. customers who concealed their accounts from the U.S. government in violation of tax laws.
“At a time when millions of Americans are losing their jobs, their homes, and their health care, it is appalling that more than 50,000 of the wealthiest among us have actively sought to evade their civil and legal duty to pay taxes,” the acting assistant attorney general, John DiCicco, said in a statement.
All you TBP readers planning on moving out of the country to avoid paying taxes:
Forget it. Bite the bullet and pay back taxes. Being rich and having a numbered swiss account “don’t work no more”. Not only that but “the rich are the drivers of the economy” is being laid bare as the exact oppposite of reality. It’s an electronic world, don’tcha know?
February 19th, 2009 at 6:54 pm
@ottovbvs — My reference to social engineering was not intended to say if it’s good or bad…simply to point out that the Kudlow crowd only dislikes social engineering (or government for that matter) when it doesn’t fit their world view or narrow agenda. Kudlow’s problem is that he’s the living model of the hedgehog mentality.
@MRegan — Apparently the ones who built ‘em were supposed to buy ‘em. Undocumented workers built the housing boom and the home builders were thrilled with the cheap labor (How many INS raids were there on construction sites in the last decade? Home builders had better lobbyists than the chicken plants. And quite frankly some of those guys can really swing a hammer.)
Then they headed down to the no-doc lenders to buy an American Dream. If the construction workers couldn’t afford the McMansions they were building, they were probably able to buy a starter home from the yuppies who moved up to the (way too big) McMansion.
No doubt there are dozens of merits to home ownership. I own outright and have no mortgage. Took every deduction I could along the way. But it just looks to me like the downsides to owning vs. renting, particularly the potential for declining values and the lack of liquidity, have until now not been adequately highlighted. Owning will continue to be a great course for many if not most, but setting it up as the consummate financial goal seems to make less sense today than it did in the 1950s.
And Santelli’s basically a loudmouth tool.
February 19th, 2009 at 7:15 pm
@ Ben & Otto-
people do make decisions based on tax preference all the time. If all choices were tax neutral- people would buy a smaller home. I have seen it said countless times in financial advice columns for folks to buy the biggest most expensive house they can afford to maximize the tax benefit. I guarantee that average sq footage would drop if there was no tax benefit to buy larger. I reject the premise that homeownership should be a societal goal. I do believe that people will buy homes regardless of any tax preference- the government should be neutral. Will it reduce the percentage of people who own homes- possibly- but who cares. If folks complain about any move to remove this subsidy- then they should shut up about other groups in society who receive government benefits.
February 20th, 2009 at 9:12 am
The slope of this graph should scare anyone. Just another record drop in a slew of data coming out now. How can people ignore the facts and just rely on hope? Housing is accelerating to the downside and all levels, including the very high end are in for a huge decline. Here on the Westside of LA, prime neighborhoods are finally getting the picture. Undercutting of home prices will be the norm, as sellers rush for the exits, among rising inventories. Mortgage bailout does little for 90% of affluent homeowners.
http://www.westsideremeltdown.blogspot.com
http://www.santamonicameltdownthe90402.blogspot.com