ES -- DX/CL -- isee -- cboe put/call -- specialist/public short ratio -- trinq -- trin -- aaii bull ratio -- abx -- cmbx -- cdx -- vxo p&f -- SPX volatility curve -- VIX:VXO skew -- commodity screen -- cot -- conference board

Tuesday, March 17, 2009


the collapse in new home starts is over

calculated risk blogs a tick up in housing starts.

Total housing starts were at 583 thousand (SAAR) in February, well off the record low of 477 thousand in January (the lowest level since the Census Bureau began tracking housing starts in 1959).

Single-family starts were at 357 thousand in February; just above the record low in January (353 thousand).

Permits for single-family units increased in February to 373 thousand, suggesting single-family starts could increase in March.

CR had called a possible increase in february starts last month on the basis of permits. and permits rose again, from very low levels, indicating more starts next month.

it's no secret that many homebuilders are in dire financial straits. new home sales are at their lowest run rate in the sample, which dates to 1963, in spite of considerable population growth since the last trough. but it is also true that the actual number of new homes in inventory (not including some condos) is falling steeply and is back to 2003 levels around 350,000. still, that's over 13 months supply, as CR notes, at the current run rate -- more than the industry wants or needs.

CR also spoke with some california homebuilders who articulated that they simply cannot compete with existing home distressed resales -- bank REO and the like.

so what's driving this uptick? regional variation, possibly -- the collapse in places like california, florida, nevada and arizona is now so complete that upticks in construction in places like, oh, say, mississippi are no longer overwhelmed in the aggregate data. looking at the regional granularity in the census bureau's report shows that the boost came in spite of further deterioration in the western region, with the most important rebound in multi-unit starts in the southern region.

another important candidate would be seasonality and seasonal adjustments. the unadjusted numbers in the report are revealing in that is shows just how monstrous the winter season weighting of the southern region is, particularly now that the western region has collapsed so utterly. there were more starts in the south in february than in the other three regions combined. this imbalance probably reduces the reliability of the figures, and will soften as the calendar turns to spring.

but it's also true that, breaking down starts by type, with condo construction essentially zero, the massive collapse in built-for-sale has put total built-for-sale figures on a par with owner-built and built-for-rent -- where built-for-sale was once an order of magnitude more important and essentially the only important driver of changes in new home starts.

as can be seen from the data CR cites, the total change in starts is much larger than the change in single-family units -- and single-family units make up all of built-for-sale (ex-condos) and owner-built. as above, multi-unit starts are responsible for the uptick, and this means rental property.

but even single-family starts may now be much less prone to further collapse, as owner-built -- a deteriorating but less volatile series -- is now a much larger component of single-family starts. it could refuse to rebound or even deteriorate somewhat further, but the dramatic collapse is probably now over, even with various large homebuilder bankruptcies looming.

UPDATE: calculated risk himself is more cautious, but does expect a bottom in new home starts in 2009.

Labels: , ,

I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


------ ------- ------

Post a Comment

Hide comments

This page is powered by Blogger. Isn't yours?