New Construction Falls 54%: Less is More
Another brutal number:
Building permits in April fell -50.2% (±1.4%) below the April 2008 rate. The monthly seasonally adjusted annualized rate of 494,000 was -3.3% (±2.3%) below the (revised) March rate of 511,000.
Single-family permits were up 3.6% (±2.2%) above March figure of 360,000, but fell 42% below April 2008.
Privately-owned housing starts in April were (seasonally adjusted and annualized) 458,000. This is 12.8% (±13.0%)* below the revised March estimate of 525,000 (Note that the high error number means it is not a statistically significant finding). The year over year number was down 54.2% (±6.0%) below the April 2008 rate.
As bad as these numbers sound, they are actually a net positive. More inventory is a bad thing, so less starts and permits is a good thing. . We still have several million foreclosures possible over the next 3 years, and that will add to supply and drive prices further down. Int he evnet that prices do move higher somehow, expect to see millions of shadow inventory — homes bought on spec or to be flipped — to hit the market.
New Housing Starts: Any Change in Trend Detectable?
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Source:
NEW RESIDENTIAL CONSTRUCTION IN APRIL 2009
Census.gov
MAY 19, 2009 AT 8:30 A.M. EDT
http://www.census.gov/const/newresconst.pdf
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May 19th, 2009 at 10:08 am
Buy now or be priced out forever.
May 19th, 2009 at 10:16 am
There is a tremendous amount of shadow inventory, and an entire shadow market is developing in some places. In CT, realtors are collecting lists of potential buyers for negotiating “pre-foreclosures” on higher end properties, quite a lot of which are builder spec homes.
May 19th, 2009 at 10:19 am
U.S. Housing Starts Unexpectedly Fall to Record-Low Pace; Permits Decline
http://www.bloomberg.com/apps/news?pid=20601087&sid=asWLID20AM08&
Unexpected? Really? It just shows you how unrealistic the green shoots expectations are.
May 19th, 2009 at 10:21 am
Wake up, BR. This shit’s important!
May 19th, 2009 at 10:25 am
The triumph of HOPE over reality! Disconnected Mkt with Fed rinduced ally and delusional Investors!
Happy talk has been very effective propaganda in raising the consumer sentiments. But how far this charade go on?
May 19th, 2009 at 10:27 am
BR pondered:
As bad as these numbers sound, they are actually a net positive.
reply:
That sounds like crap to me.The only way a massive decrease in an already sickly level of new housing can be good is if nobody is buying now and nobody is expected to buy soon. Thus you can run down existing inventories without wasting resources. This example capably describes a horrible economy.
Thus, bad has become the new good providing something can be spinned to paint it over. (I was wondering how bad would be turned into good about an hour ago. Thanks for the insight.)
What would be “good” as the word has been defined historically, is an increase in permits and starts corresponding with an increase in sales. Thus both existing inventory would be going to one set of buyers and new homes would be going to another set of buyers. To say “Hurray! permits are approaching zero. Now we can finally move existing inventory” is only good if you are an owner of existing inventory. It’s otherwise bad for construction workers, appliance salespeople, appliance manufacturers, lumber workers, and a lot more.
May 19th, 2009 at 10:33 am
@hobo:
Reducing the amount new inventory being added to a flooded market is a good thing because it’s a necessary first step towards eventual recovery.
Green shoots means green shoots. Every great tree starts off as a seemingly dead speck of woody material. It eventually sprouts, but it appears to be nothing more than a soft, weak shoot. Then it develops into a spindly sapling. Eventually, it will grow into a towering redwood.
One of the great crimes of the last 8 years was that people learned to think of everything in the terms that George W. Bush used: black and white, good and evil, progress and regression, growth and contraction. They forgot that most things are actually gray, and it’s simplistic to expect any process to occur overnight.
May 19th, 2009 at 10:34 am
The homebuilder CEO’s, strategists, etc. have been dragged to a optomologist’s-chair view of reality:
Dr. Market, an renowned opto: “Look… look… what does that say?”
Homebuilders who crave more options: “Uhh…. that we don’t need to build more houses for a while?”
Dr. Market, “Yes! You’re cured. Your next appointment is in 2012. Oh, couldja just leave those rose tinted shades I gave you back in 2002, I”m sending them back to the manufacturer, OK?”
May 19th, 2009 at 10:36 am
This is good news. Excess inventory is a big problem-we have to bring it down. You don’t do that by building more inventory. The apartment business-my niche- will soon be dead if they build anymore.
May 19th, 2009 at 10:40 am
franklin411 Says:
May 19th, 2009 at 10:33 am
@hobo:
Reducing the amount new inventory being added to a flooded market is a good thing because it’s a necessary first step towards eventual recovery.
comment:
—————–
You make my point. There’s no law against selling old and new inventory at the same time. If there’s little demand for both old and new inventory at the same time, then this is evidence of a really bad economy. The decrease in permits does not mean sales of existing homes will get the slack. That’s your imagination talking. I would postulate that a decrease in demand for one type of housing is circumstantial evidence of a decrease in demand for all housing.
I suspect the rising price of gas is spooking buyers. They don’t want to be caught in an inflation squeeze just after dropping large green on a new house. The shaky jobs environment is probably also causing a little apprehension.
May 19th, 2009 at 10:42 am
thetanman Says:
May 19th, 2009 at 10:36 am
This is good news. Excess inventory is a big problem-we have to bring it down. You don’t do that by building more inventory. The apartment business-my niche- will soon be dead if they build anymore.
comment:
—————
So let me get this straight. Nobody is buying apartments now, even old distressed inventory. How is this a long term positive?
May 19th, 2009 at 10:43 am
boy- can’t wait for another Redwood Tree story-
please let me know when it’s story time again- us 4 year old’s love story time
May 19th, 2009 at 10:49 am
dead hobo,
There are a lot of people teetering on the abyss. Like my nephew. He seems to be in a trance of some kind. The key is if we can pull these people back from the edge, and the sense of doom lifts just a little. I can tell that if we can do that they’ll go on a spending spree. He’s ready to spend like a madman if someone will lend to him.
May 19th, 2009 at 10:51 am
thetanman:
He won’t be spending, he’ll be going into debt. Better to be in a trance.
May 19th, 2009 at 10:52 am
Marcus Aurelius Says:
May 19th, 2009 at 10:51 am
thetanman:
He won’t be spending, he’ll be going into debt. Better to be in a trance.
comment:
——————–
Well said.
May 19th, 2009 at 11:03 am
dead hobo
The problem is supply. If they keep building, those old units will never sell. Also its getting tougher and tougher to rent. I have good locations and have spent all of the income over the last 8 years fixing things up. So I haven’t felt the recession too much. Also not in one of the big bubble states. But if they don’t stop building the whole shooting match will go down the toilet and stay there. In fact its already there. You can’t move anything even if you gave it away. The only hope is a plunge in construction.
May 19th, 2009 at 11:15 am
I don’t really understand what my nephew, and a lot of other people are doing. His job is teetering, his cards are maxed, he has a 2 year old child, and he just built a deck on his house. The trance comes in when I talk to him about it. He just stares off into space like everything will work out. I keep telling my sister to get ready to be Geithner.
May 19th, 2009 at 11:17 am
It doesn’t matter whether this is good or bad news – all that matters is how its spun.
If the GM and Chrysler bankruptcies can be spun as really good for the economy – then a decline in housing starts can be anything they choose it to be.
Take Chrysler – secured bond holders got 33c in the dollar – all the big banks had no choice as they are ‘controlled’ by Uncle Sam at the moment but the smaller bond holders were labelled “greedy speculators” and bullied into accepting.
So out of the ashes will emerge a new Chrysler owned by the Trade Union – who will continue to pay manual laborers $60-70k a year to produce shit cars. But somehow this is good for the economy.
So bottom-line is that we no long live in a true capitalist society, therefore all rules are out the window and unless something unbelievable happens I am starting to believe the V shaped recovery is a formality.
p.s. If I were a GM bond holder I would have my tape recorder ready for when Steven Rattner calls.
May 19th, 2009 at 11:18 am
thetanman Says:
May 19th, 2009 at 11:03 am
The problem is supply.
comment
——————-
“Supply” can only be a problem if demand is way out of whack. The problem is not supply as much as it is poor demand. Solve the poor demand problem and you solve the excessive supply problem. You don’t cure an excess of supply by shutting down all of the manufacturers. Even the car manufacturers wouldn’t be in such bad shape if the economy was stronger. Thus, we are forced to kill the patient by claiming it deserved to die because it became corpulent.
May 19th, 2009 at 11:20 am
A corollary to dead hobo’s point is that with this few permits and beginning builds, this weakness spreads too….pine 2×4′s, paint companies, nails, shingles, copper wire, etc. On top of the topping of CRE, and the car companies weakness the rest of the year (nine week shutdown, GM ceo announces already May sales continued weak)…
of course the big picture is that with oversupply, you must take a break from building…but those associated with the building trades should add to the summertime weakness…gas here is 40 cents higher than 3 months ago…still a lot of F 150′s on the road here too at 16 mpg.
I look with interest at the vote in California today…
May 19th, 2009 at 11:30 am
“I don’t really understand what my nephew, and a lot of other people are doing. His job is teetering, his cards are maxed, he has a 2 year old child, and he just built a deck on his house.”
Odd isn’t it. This is why this summer feels like it will be the Last Hurrah of Denial for the Indebted Majority before the jig is finally up. I know people where the job is gone, the F/C and BK are coming for sure, yet they carry on spending as though nothing has happened. Two people unemployed, but still have a cleaner and use “doggy day care”. Everyone seems to think that there will be a bailout for them, too. This economy seems more like rotting wood underneath than green shoots.
Watch the consumer credit number and the retail sales – because if that sector keeps “cliff diving”, then no amount of smoke and mirrors is going to keep this market up.
May 19th, 2009 at 11:32 am
[...] housing starts report sounds, it’s actually a net positive, FusionIQ CEO Barry Ritholtz says at The Big Picture. More inventory is a bad thing, so less starts and permits is a good thing. We [...]
May 19th, 2009 at 11:32 am
Repricing. It’s painful. Likely inevitable.
May 19th, 2009 at 11:35 am
Commenting from the highway on the way to my sister’s on the north shore outside of boston. Couldn’t stay away from tbp.
Agree that its all about the spin now. Its one big fragile confidence game, with the focus on “con”. Checked out tha link on zerohedge about the existence of the “ppt”. It seems I’m not the only one who has noticed the late 10 minute market pump virtually every day in recent weeks. It’s definitely not “natural” or even that “invisible.”
May 19th, 2009 at 11:43 am
Manny, keep your eyes on the road….;-)
May 19th, 2009 at 11:47 am
I think Bush had it right by giving out stimulis cheques… he just didn’t give enough… and he didn’t haircut the higher income earners with a nice tax increase.
Now… Obama is sailing the ship… but has forgotten that the doomed decreasing demand side of the ship needs to be fixed. Create demand by increasing unemployment payments… and create a net worth wealth tax… people will spend… if they had the cash to spend.
The velocity of cash turnover has to be fixed… or maybe the trance dance of being poor is the better way… we can learn to be happy with less. It might be painful… not to have stuff… but has a lot of stuff made people more happy???
May 19th, 2009 at 11:55 am
dead hobo
Clearly you’re right that this is not really positive news, just more evidence of a sick economy. But building more houses/apts in the face of the current glut and falling prices would be, and is, stupid. So not doing so is good. But that’s a long way from getting excited about the prospects of recovery (and having the market rise as a result), which is your point.
I can’t imagine any builders still building on spec in this environment. There may be an isolated market where it’s not suicidal but even that’s hard to believe.
I think we all agree on this.
May 19th, 2009 at 1:02 pm
@ arcticpup: I follow your reasoning and I think the next intervention would probably be another stimulus cheque to work on the demand side of the equation. There is little stomach for additional bailouts at present although it seems clear that the CRE bust will eventually necessitate another bank bailout.
May 19th, 2009 at 1:16 pm
They need to allow the housing market to bottom out by finding its own equilibrium in prices through discovery. That’s part of the definition in “free” as in–free markets.
May 19th, 2009 at 1:57 pm
@lefty
“Watch the consumer credit number and the retail sales – because if that sector keeps “cliff diving”, then no amount of smoke and mirrors is going to keep this market up.”
it’s been absolutely gorgeous in kc weather wise the past 5 days and the country club plaza, again, was dead, and by dead i mean you could get a, not decent, but rock star parking spot just about anywhere. the royals have been selling out but who turns down 5 dollar tickets? coupled with “credit card reform”, retail is in for a bad winter. I just want to get my AA miles used before Obama taxes them…
May 19th, 2009 at 2:19 pm
Read my lips, NO new houses!
LOL!
http://en.wikipedia.org/wiki/George_H._W._Bush
May 19th, 2009 at 2:30 pm
“They need to allow the housing market to bottom out by finding its own equilibrium in prices through discovery. That’s part of the definition in “free” as in–free markets.”
Who ever said anything about free markets? A free market wouldn’t lever the reserve currency status of the dollar to create 1.25 trillion more of them out of thin air in order to buy mortgage backed securities to foster the illusion of demand for housing. The impressive thing in all this is that sane decisions, like reducing the additions to inventory in an over-supplied market, are still being made at all, even in the face of this massive government stimulus.
What was that in an earlier thread about abolishing the federal reserve? Might as well. All it can do is create monetary illusion. Real demand and real supply will find a way to reach an equillibrium, whether or not the federal reserve monkeys with the money. That’s a green shoot.
All we need from the fed is a currency that acts as a reliable medium of exchange and store of value. Through all their machinations to date, we are assured of getting neither.
May 19th, 2009 at 2:51 pm
@franklin411:
You said: “Reducing the amount new inventory being added to a flooded market is a good thing because it’s a necessary first step towards eventual recovery.”
I would like to second you here. These are actually very good news today. Even increasing inventory together with decreasing new constructions is good news, since increasing inventory is the first step toward decreasing inventory and an eventual recovery.
rc
May 19th, 2009 at 3:13 pm
“…Who ever said anything about free markets? A free market wouldn’t lever the reserve currency status of the dollar to create 1.25 trillion more of them out of thin air in order to buy mortgage backed securities to foster the illusion of demand for housing. The impressive thing in all this is that sane decisions, like reducing the additions to inventory in an over-supplied market, are still being made at all, even in the face of this massive government stimulus….”–Curmudgeon
GEKKO
You’re walking around blind without
a cane, sport. A fool and his money
are lucky to get together in the
first place.
BUD
Why do you need to wreck this company?
GEKKO
Because it’s wreckable. I took
another look and I changed my mind.
BUD
If these people lose their jobs,
nowhere to go. My father worked at
Bluestar for twenty-four years. I
gave ‘em my word.
GEKKO
(hard)
It’s all about bucks, kid, the rest
is conversation…
(loosening)
Bud, you’re still going to be
president. And when the time comes,
you’ll parachute out a rich man.
With the money you’re going to
make, your father won’t have to
work another day in his life.
BUD
Tell me, Gordon–when does it all
end? How many yachts can you
waterski behind? How much is enough?
GEKKO
Buddy, it’s not a question of
enough. It’s a zero sum game, sport.
Somebody wins and somebody loses.
Money itself isn’t lost or made,
it’s simply transferred from one
perception to another. Like magic.
That painting cost $60,000 10 years
ago. I could sell it today for
$600,000. The illusion has become
real. And the more real it becomes,
the more desperately they want it.
Capitalism at its finest.
BUD
(again)
How much is enough Gordon?
GEKKO
The richest one percent of this
country owns half the country’s
wealth: 5 trillion dollars. One
third of that comes from hard work,
two thirds of it comes from
inheritance, interest on interest
accumulation to widows and idiot
sons and what I do — stock and
real estate speculation. It’s
bullshit. Ninety percent of the
American people have little or no
net worth. I create nothing; I own.
We make the rules, Buddy, the news,
war, peace, famine, upheaval; the
cost of a paper clip.
(picking one up)
We pull the rabbit out of the hat
while everybody else sits around
their whole life wondering how we
did it…
(crosses to Bud)
…you’re not naive enough to think
we’re living in a democracy are
you, Buddy? It’s the free market.
You’re one of us now…take
advantage of it. You got the killer
instinct, kid, stick with me. I got
things to teach you…
BUD
Obviously…
http://www.imsdb.com/scripts/Wall-Street.html
it can be spelled out, people may read, but Think? Come to their own Conclusions? Better, Take a Poll~
(Science=Popularity) is PR/agitprop/Propaganda used for Brainwashing, not any equation that will give you a Balance Sheet, worthy of the Name..
btw, who’s been signing-off on these “Audits”–was SarbOx repealed??
O, I C, no SarbOx for the GAO, at the minimum…
May 19th, 2009 at 3:20 pm
@rc
Are you out of your mind?
Forget housing…
OK so let’s say Joe Vegetable stand owner now has 100 lbs of tomatoes on his cart versus 50 lbs…
Now those 50 lbs EXCESS inventory are going to rot…
HOPEFULLY, a guy like you or Franklin will come along and but all the new inventory AND all the rotting tomatoes…
Otherwise…he LOSES on the old inventory (and at best breaks even on the replenished inventory)…
More likely, NOTHING gets sold and he writes the whole thing off as bad debt and goes bankrupt…
But luckily, you and Franklin are buying the “common shares” of the banks that are lending him the money to put in inventory the tomatoes he can’t sell…
So those guys do fine…
May 19th, 2009 at 3:41 pm
Re: As bad as these numbers sound, they are actually a net positive.
I’d characterize this development more as a “necessary evil” rather than a net positive. If we have a limitied amount of groceries and I die, thereby saving food for my family, I’m not going to think of it as “net positive.” I doubt they would either, if only for the fact that they would also lose the breadwinner. Most people don’t like being Debbie Downer all the time, but let’s quit contorting ourselves to find something positive to say about an economy that is in the crapper and headed South.
May 19th, 2009 at 3:41 pm
rootless_cosmopolitan Says:
May 19th, 2009 at 2:51 pm
@franklin411:
You said: “Reducing the amount new inventory being added to a flooded market is a good thing because it’s a necessary first step towards eventual recovery.”
I would like to second you here. These are actually very good news today.
comment:
—————–
You also miss the point. By implication, you assume since new homes are not being started, then sales of existing homes must be replacing them. In other words, you assume the total number of sales is constant, only the mix is now favoring existing homes. This is where you are likely incorrect. The main implication of today’s housing number is that all home sales are in the dumpster, including existing homes. Thus, it’s not good news.
You have no evidence that existing home sales are improving at the expense of new home permits or starts based on this statistic.
May 19th, 2009 at 3:48 pm
I expected the irony would become clear by taking things into the absurd. I guess I have been wrong.
rc
May 19th, 2009 at 3:52 pm
@tanman
Re: Your nephew. Bro, he’s getting all he can while he can. This is why some of us go on and on about moral hazard. If we, as a country were to stop digging this hole, it would be a lot easier to climb out of. Instead, we are intent to drill this mother right through to China.
Also, this:
“He’s ready to spend like a madman if someone will lend to him.”
Again, this is the moral hazard we are warning about. What did BR say about not drinking oneself sober?
May 19th, 2009 at 3:55 pm
Even the housing bubble was good news, since the housing bubble was the first step toward the crash, which precedes recovery. Thus, without housing bubble no recovery.
rc
May 19th, 2009 at 4:00 pm
rootless_cosmopolitan Says:
May 19th, 2009 at 3:55 pm
Even the housing bubble was good news, since the housing bubble was the first step toward the crash, which precedes recovery. Thus, without housing bubble no recovery.
rc
comment:
—————-
Well said, Spock.
May 19th, 2009 at 4:15 pm
Don’t worry, housing is re-bubblin’. Karen, et al, that are hoping to see a bit of inflation–it’s already there in housing price declines that are being held at bay (somewhat) by the Fed’s mad printing.
It’s like we’re on wheel of ever-decreasing size, pushed along by the Fed, rolling from crash to boom to crash to boom until the wheel becomes just an infinitely dense point, a black hole, from which there will be no escape.
May 19th, 2009 at 4:51 pm
@rc
At this point I can’t tell where you’re coming from (facetious or serious)…
In any case, if you’re SERIOUS that the housing crash was the necessary step towards bringing us towards our awakening (which I could AGREE with)…Then…
I’d have to suggest that there needs to be some “follow thru” to that scenario…
The WAKE of the housing crash has been studded with the following:
- Obama trying to “cram down” mortages
- The FED taking all kinds of toxic waste onto its balance sheet
- The lack of trust in US Treasuries and need for FED to purchase (increasing $$ supply)
- Bailouts as far as the eye can see (which eventually becomes a burden to taxpayers & GDP)
- FASB rules being relaxed (sweeping all the above under the carpet)
ALL of that has been POLICY RESPONSE and therefore ALL OF IT (save for a few measures at the end of the Bush Administration), are now the sole INTELLECTUAL PROPERTY of one BHO…
So the point is…
Why didn’t BHO simply see the problem for what it was and let it collapse?…Sure, it would have been distasteful, but nobody would have blamed him for a problem that he INHERITED…
His DEMISE will be due to the fact that he ARROGANTLY spent most of his time BLAMING the problem on previous Administrations, and, having NO VIABLE SOLUTION of his own, grasped the first straw available…
he will find that it will be FLAWED, and thus EXACERBATE the DAMAGE…
Arrogance = Gullibility = Failure…
In a crisis like this we need LEADERS…The American people had a voice and they chose to elect NOT a leader, but an American Idol…
I don’t want America to FAIL…neither do I think any AMERICAM wants America to fail…But to GO FORWARD we need someone willing to convince people to pay a price…Obama won’t be able to do that until he’s willing to pay a price HIMSELF…he isn’t doing that…
So the HOUSING FAILURE saga hasn’t finished yet…(witness the recent run-up in equities – WHICH WILL END BADLY)…most of it is based on falsely placed hope 4 Obamanomics…
when that euphoria finishes…we’ll START to achieve the final REAL demise of the HOUSING bubble (which itself was a product of the GREENSPAN & CLINTON bubbles – which was a product of the REAGAN bubble)…
May 19th, 2009 at 5:22 pm
Since the next phase of our economy, bubbly or not, is NOT going to be based on construction funded by fake paper, why is a year-to-year drop in construction of 50% a surprise?
This may be bad news for builders and investors in builders, but to me, it just seems logical that starts won’t be what they have been for a long time.
Also, about all that inventory–a lot of it is worthless and only drags-down the fake, undesirable neighborhoods in counties a 2-3 hour commute east of LA or surrounding Las Vegas…the drag on my nice neighborhood by the sea near where Mannwich is driving isn’t so much…
May 19th, 2009 at 6:03 pm
I don’t see any green shoots or a net positives in this stat. It’s simply reducing supply to fit demand. In this case, reducing supply affects employment which further reduces demand. Even worse, the employment being affected is one of the few areas that can’t be outsourced to low wage countries.
The only road to recovery is to increase employment. However, our technological advances over the last few decades (or dare I say centuries) is to reduce the number of people it takes to build the things people need. The one area this isn’t true in is health care, where the single family doctor has been replaced by a team of specialists, nurses and assistants. So, if Obiwan can get a handle on health care, slash the prices on mass produced medical items to cost and crank up the number of people involved in taking care of our rapidly aging population, I think recovery could be at hand.
Of course, there’s always the alternative (which sadly is just as likely). China invades Taiwan, Russia invades Germany, Pakistan nukes India, etc. Demand outstrips supply because supply becomes unavailable. Too much of a downer to even pursue further.
May 20th, 2009 at 5:44 am
[...] mentioned the weak housing starts yesterday (New Construction Falls 54%: Less is More), but here is a great chart from RM that puts it into [...]