Jun 21 2007 6:56AM | Permalink | Email this | Comments (2) |
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Housing starts dropped 32,000 in May to 1.474 million and April’s total was revised down 22,000. This confirms that the lingering weakness in starts is not yet fully over and that the long, slow recovery process has not yet begun. Housing activity remains at the low point for this building cycle as evidenced by May starts being nearly identical to the year to date monthly average. Also, May permits improved slightly to 1.501 million and remain approximately balanced with starts which suggests that builders have found a temporary equilibrium at the bottom of the cycle.

However considerable regional differences remain. May starts increased in both the Midwest and Northeast to about 30,000 above the year to date average. The 192,000 pace in the Northeast is clearly above trend because permits weakened to 145,000. The 238,000 starts in the Midwest probably signals some initial recovery in this region which was beset with industrial job losses as well as the mortgage and overbuilding problems that impacted the whole country.

May starts dropped in the South to 726,000 and especially in the West to 318,000 to well below the recent trend for permits. An optimist would see this as a one month random dip soon to be reversed. However, it is more likely that permits are off trend rather than starts. These regions are suffering the most from tighter mortgage underwriting standards at the bottom of the market and the withdrawal of speculators at the top of the market.

The Reed Construction Data starts forecast has been edged down a little due to the weaker than expected April and May starts. We now expect starts to drop to 1.507 million in 2007 and then partially recover to 1.660 million next year. Starts will not reach the sustainable long-term1.850 million starts level until at least well into 2009 and possibly even later.

While it is a great time to buy a house if you do not have to sell another house to raise the down payment, it is a terrible time to buy one house and buy another house because of the greater than usual uncertainty about the realized price and time on the market for the first house.