Quickly, here is the scoop on new home construction.
Housing starts were down 12.8% in April versus March. The annual pace of construction was 458,000. The decline in starts was concentrated in multi-family construction (more on this below). Single family starts actually increased by 2.8% to 368,000. That is, however, a very weak number.
From the WSJ Real Time Economics blog here are a few selected thoughts on the report (visit it for complete coverage):
» Obviously, the condo market is in bad shape — and has been for quite awhile. We suspect that much of the latest decline in the multi-family sector deflects a pullback in construction of rental properties as rents sare coming under significant downward pressure in many areas across the country. Also, the recent problems in the [commercial mortgage backed securities] market are probably helping to restrain starts of both apt and condo construction. There was one interesting quirk in the April starts report — the volume of housing completions rose for the second straight month. This seems quite bizarre in the face of the steady downturn in new homebuilding seen over the past couple of years. However, our analysis of the regional data, suggests that all of the recent increase is tied to the completion of some projects in NYC. These projects were undertaken last year just before a significant tightening of building codes went into effect (see our June 2008 data bulletin for more details). –David Greenlaw, Morgan Stanley
» The headline says “record low housing starts in April”, but somewhat lost in the commotion is that the single family segment of the housing market is indeed exhibiting signs of stabilizing while the multi-family segment has gone into the tank… What is likely happening is that the single family segment of the market is indeed forming a bottom, at an exceptionally low level, while the multi-family segment of the market is reflecting the impacts of the credit market turmoil and the deep recession. And, while the April figures could well mark the low point for multi-family starts and permits, the reality is that neither the ingle family nor the multi-family segments of the housing market will be seeing a significant, sustained recovery any time soon. –Richard F. Moody, Forward Capital
» The market for multi-family homes is in a deep slump. Multi-family starts and permits both fell to all-time lows in April. The recent drops have been mind-blowing… This sharp decline is related to financing. Some builders are overwhelmed with debt. Others cannot find funding to finance projects with positive net present values. –Patrick Newport, IHS Global Insight
» The April housing starts report was a tale of two worlds. Single-family starts and permits continued to remain fairly stable, as they have since the start of the year, but multifamily starts and permits dropped to an all-time low… We generally think of the single-family sector as being the most important segment of homebuilding, and there it is positive to see that new home construction looks to have stabilized. Stability in single-family starts will lead to a reduction in the drag to growth from residential investment. On the other hand, we are probably still a ways from seeing balance in the market for single-family homes, as the months’ supply of single-family units probably will not fall to a comfortable level until late 2009 or early 2010. –Abiel Reinhart, J.P. Morgan
A couple things strike me as somewhat strange and any thoughts from you would be helpful.
By all accounts, there is a certain amount of feeding frenzy in selected markets, particularly those that have been hit hard by foreclosures. First time home buyers and investors appear to be snapping up cheap homes even as reports indicate that more foreclosures are coming down the pike.
Is this a short-term phenomenon? Will it run out of steam as the deals inevitably start to vanish or is it building a base for a healthy market? I tend to think it’s a little of both but so long as interest rates stay low, I have to believe that there is some staying power in the rally.
Now, where do prices go? I assume that there will be some bounce up as supply gets tighter (that might take a while). After that, it seems to me there is no clear definition of direction. If anything, I would expect investors to try and cash in on any moves up and I don’t think that prices are going to rebound enough to enable this round of buyers to cash out and move up in the market anytime soon. However, I could be off the mark on this one.
Finally, and this is a bit off topic, the mini-frenzy is something you would expect to see in an environment in which people anticipate inflation. Consumer expectations count for a lot, so is this telling us something? Given that there isn’t any supply constraint this behavior doesn’t make a lot of sense. Are buyers stuck in a 2004 mentality or are they really signalling something everyone else seems to be missing.
That’s enough musing. If you have any thoughts please leave them.
Update: Just came across this from HousingWire. Not pretty.
The seasonally-adjusted delinquency rate among residential mortgages reaches a record high in Q109, soaring to 7.9% from 6.3% in the previous quarter, according to statistics calculated by the US Federal Reserve. It marks the 12th quarterly increase since Q106, when the rate sat at 1.6%, as well as the highest rate in the Fed’s records starting in 1985.
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