Single family starts up in July; multi family starts drop

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single family starts up in july; multi family starts drop

Insight and Analysis of Construction Industry Trends

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Jim Haughey

RCD Chief Economist

Aug 18, 2009

Regionally, housing starts are approximately stable since the beginning of the year in the Northeast and the South, still and declining in the West and rising rapidly in the Midwest. The West has the most troubled housing markets with the most surplus inventory of unsold homes and the most rapid decline in home prices. California’s still unresolved state budget bankruptcy is reducing homebuyer confidence. The initial surge in spending that will end the GDP decline this quarter is occurring disproportionately in Midwestern factories, especially, in the auto industry. Factory production rose 1% in July after declining16% over the previous eighteen months, the steepest fall in more than 50 years. Also, the Midwestern housing problems were caused much more by the recession than by subprime mortgages. The recession is ending but the consequences of the subprime mortgage problem are disappearing slowly.

Although hard data is still elusive, housing starts are being buoyed by federal mortgage payment forgiveness programs. After several timid programs that produced embarrassing little result, the current more aggressive program has “adjusted” several hundred thousand mortgages in recent months. This kept many of these homes from forced sales at panic prices. The result was slower home price depreciation and a smaller inventory of empty homes for sale.

The housing market recovery is still fragile. Buyer confidence remains stuck at a depressed level. While near a record high level, home affordability, home affordability will decline for the rest of the year with rising mortgage rates. A few well financed large homebuilders are now adding inventory in anticipation of rising home sales but most homebuilders lack the financial resources to do this.

The best news for the housing market would be a significant jump in consumer confidence. This did not happen in August. The National Association of Homebuilders’ member survey of market conditions showed only a one point rise to a still miserable level of 18. The index was in the 60’s during the housing boom in 2005. The August Consumer Confidence from the Conference Board is unlikely to show much improvement if any at all.

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