Tuesday, May 19, 2009

Housing report carries a mixed message

Today's housing reports indicates that building permits in April 2009 decreased 3.3% from March and declined 50.2% from April 2008, to 494,000. Housing starts in March 2009 decreased 12.8% from the prior month and declined 54.2% from the prior year, to 458,000.

On the surface this appears to be more bad news. But there is a silver lining. Behind the headlines (interestingly, the same was the case with retail sales), the numbers didn’t look as terrible.

First, with record inventory why are people rooting for additional supply? Second, the large, and unexpected, decline in housing starts is driven solely by a huge drop in multi-family housing starts, which dropped 46.1% to only 90,000 at an annual rate. This looks like a payback for a large increase in February when multi-family starts rose 65.6%. In addition, single family starts rose 2.8% while permits rose 3.6%. This trend, if sustained in coming months, would suggest that single family housing starts are in the process of bottoming and we may be starting the long, slow recovery. As I have said before, regional variations do exist so be wary of painting with too broad a brush stroke.

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