Homebuilders cut housing starts 12% in March, attempting to match new home supply with still falling home demand. This latest cut will achieve a match only if new home quickly pick up from the recent low level. That is unlikely. While home completions are falling quickly, existing home sales are no longer falling and the combined inventory of new and existing homes for sales is also now declining, further small reductions in new home starts are likely necessary through the spring. At this late stage of the housing downturn, the expected small net decline in starts consists of still large declines in the overbuilt housing markets in the southeast and southwest and economically troubled Great Lakes Region and steady or modestly rising starts in most of the rest of the country.

High fuel costs have become an additional restraint on home purchases. Beyond the negative impact on real income, savings and confidence, $3.75/gallon gasoline raises the commuting cost from the suburbs where most of the surplus homes for sale are located.

The forecast expects a 13.0% fall in residential construction spending this year and a 10.9% gain next year. Housing starts, 0.947 million in March, will dip slightly more than rise to over 1.1 million by year end and to nearly 1.4 million by the end of 2009. This recoups only about 30%of the decline in 2006-08.

U.S. Residential Building Construction
(thousands of units)

(1) Monthly figures are seasonally adjusted at annual rates (SAAR figures).
(2) Based on a survey of homebuilders; excludes homes built under contract and multi-family rental units).
Actuals: U.S. Department of Commerce, National Association of Realtors, Freddie Mac.
Forecasts and table: Reed Construction Data.
Mfg. home shipment data for Nov. and Dec.