Housing starts continue to stop

By Justin Hunter

What happened to the days when a seller or developer would have over 20 applications from people seriously interested in buying or building a property? It seems like it was just yesterday. Actually, it was a little over a year ago.
The U.S. real estate market has gone from 60 to 0 in a short amount of time. Sales are down just about everywhere, including record declines in California (the most prosperous state over the last couple of years. Prices have also started to fall.

The most indicative feature of a struggling market is housing starts. Construction doesn’t decline until it has to, which means there is a much greater supply than there is demand.
The article, “U.S. housing starts plummet 20%,” posted on the October 18, 2006 edition of Inman News provides startling statistics about the housing market.

“The rate of single-family housing starts dropped 20.3 percent in September compared to September 2005, the U.S. Census Bureau and the Department of Housing and Urban Development announced today, while total housing starts dropped 17.9 percent.”

Although housing starts “plummeted,” there is some positive news for construction developers. The projected annual amount of total starts actually increased from its August prediction.

“Privately owned housing starts reached a seasonally adjusted annual rate of 1.77 million in September, which is about 5.9 percent above the revised August estimate.

Single-family housing starts in September were at a rate of 1.43 million, which is about 4.3 percent above the August figure. The September rate for units in buildings with five units or more was 314,000. The seasonally adjusted annual rate is a projection of a monthly total over a 12-month period, adjusted for seasonal fluctuations in construction activity.”

However, further confusing the future prospect of the housing market in general is the steady decline of authorized building permits, which will determine if a house is started or not.

“Privately owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 1.62 million, which is about 6.3 percent below the revised August rate and about 27.7 percent below the September 2005 estimate. Single-family building permit authorizations in September were at a rate of 1.21 million, which is about 6 percent below the August figure.

Authorizations of units in buildings with five units or more were at a rate of 342,000 in September.”

According to the Census Bureau and HUD, month-to-month changes in seasonally adjusted statistics should not be dissected. It takes about five months to determine a predictable patter, yet a six percent decrease in authorized building permits should prompt concern. Developers can not keep losing an additional six percent of business each month without making slight cutbacks.

The slowing real estate market is expected to stay in its lulling state for several more months.

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