Housing starts drop but housing outlook brightens
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RSS FeedHousing is getting closer to the light at the end of the tunnel. But the tunnel slopes downward. So jobsite construction spending continues to shrink rapidly while trends improve for home affordability, consumer confidence, home sale price and homes for sale inventory. Residential construction spending increased 0.6% in April. But this is misleading because of downward revisions of recent months and a bizarre April jump in remodeling spending.
Residential construction spending is forecast to fall 29% in 2009 and recover 9% next year. Within a year, residential will be the fastest expanding construction sector and will hold this rank for several years. Residential construction spending is forecast to increase 20% from mid-2009 to the end of 2010. But this only brings activity back to about half of the normal level.
The housing turnaround will be slow and rocky over the coming months. Home foreclosures are rising again after moratoriums on foreclosures expired. This surge of foreclosures is dominated by recession driven defaults on prime mortgages rather than the unraveling of subprime loans that were never affordable. The foreclosure will drop hundreds of thousands of homes on the resale market to compete with new homes. Also mortgage rates have risen 50 basis points from the recent cyclical low point. While 30-Year fixed rates are still 5.3%, tens of thousands of potential homebuyers who were marginally qualified for a mortgage a month ago no longer can get a mortgage for the same amount. Further small but steady mortgage rate rises are expected. This is due both to stronger credit demand in an improving economy within a few months and to higher risk premiums that government mortgage agencies will have to pay as investors become nervous about the high default rates on the mortgages they hold and guarantee and the ability of the US Treasury to guarantee their debts.
U.S. Residential Building Construction
(thousands of units)
| Monthly Figures (1) (latest actual values) |
Annual Figures | ||||||
| Actual | Forecast | ||||||
| Mar-09 | Apr-09 | 2006 | 2007 | 2008 | 2009 | 2010 | |
| Northeast starts (% change is period versus same period, previous year) |
72 | 50 | 171 | 143 | 120 | 61 | 83 |
| -37.9% | -45.7% | -9.6% | -16.6% | -15.8% | -49.4% | 35.6% | |
| Midwest | 98 | 77 | 285 | 206 | 134 | 80 | 107.25 |
| -27.9% | -52.5% | -20.2% | -27.6% | -35.1% | -40.7% | 34.9% | |
| South | 275 | 217 | 912 | 676 | 425 | 260 | 318.75 |
| -46.5% | -57.0% | -8.9% | -25.9% | -37.0% | -39.0% | 22.8% | |
| West | 80 | 114 | 444 | 317 | 196 | 114 | 154.5 |
| -64.8% | -52.9% | -19.4% | -28.5% | -38.3% | -41.6% | 35.1% | |
| Total | 525 | 458 | 1,811 | 1,342 | 0 | 410 | 615 |
| -47.1% | -54.2% | -12.6% | -25.9% | -32.9% | -42.9% | 28.9% | |
| Total Single-family | 358 | 358 | 1,474 | 1,036 | 616 | 374 | 528.25 |
| -50.1% | -47.0% | -14.3% | -29.7% | -40.5% | -39.2% | 41.1% | |
| Total Multi-family | 167 | 100 | 338 | 306 | 285 | 140 | 134.75 |
| -39.5% | -69.2% | -4.7% | -9.4% | -7.1% | -50.8% | -3.7% | |
| New Home Sales (2) | 351 | 352 | 1,049 | 769 | 481 | 371 | 521 |
| -31.0% | -34.0% | -18.0% | -26.7% | -37.4% | -23.0% | 40.7% | |
| Manufactured Home Shipments | 50 | 49 | 118 | 96 | 81 | 50 | 58 |
| -46.2% | -46.2% | -20.0% | -19.2% | -15.5% | -38.1% | 16.5% | |
(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.
Manufactured home data is for November and December.
Forecasts and table: Reed Construction Data.
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