New residential construction ground to a halt in November, as the nation’s homebuilders were hit by weak demand, an oversupply of homes, and a dehabilitating credit crunch, all at once. Housing starts for the month of November plunged 18.9%, to a seasonally-adjusted annual rate of 625,000, the lowest level on record (records have been kept since 1959). The number was completely off the charts, as economists were anticipating a decline to 740,000 annualized units. In the past year, housing starts have fallen by about 47% and are down 72% from the peak seen in early 2006.
Building permits, an indicator of future construction, also fell of a cliff, by 15.6, to a record low of 616,000 annualized units. Permits for single-family homes, considered by many analysts as the most important figure in the report, fell 12.3% to 412,000, the slowest in 27 years. Building permits are down 46.3% in the past year.
Builders are frantically cutting back their production of new homes, trying to work off a mammoth glut of unsold inventory. The more builders cut production, the sooner the market can recover.
New construction on single-family homes fell by 16.9% for the month, to an annualized rate of 441,000, also a record low.
Via FT Advisors:
Home builders may continue to reduce starts a bit in the months ahead, but there is just not that much room left for major declines. Back in 2005, single-family starts peaked at a 1.75 million annual rate, of which 1.4 million were built for sale (as opposed to knockdowns, for example). Now, single-family starts are running at a 441,000 annual rate with only about 280,000 being built for sale. This is not nearly enough to meet the demand for new homes, which is still running at about 400,000 per year. So inventories will continue to fall quickly. In addition, from a long-term perspective, with new home sales eventually returning to an average annual pace of 900,000+ (due to population growth and a taste for new homes), we expect building activity to rebound quickly in 2010 once inventory levels are back to normal.
Construction on buildings with 5 units or more, one of the few positives in the report for the past few months, also fell, by 26.9%, in a sign that rental properties may not be in demand anymore.
Regionally, total starts fell by 34.6% in the Northeast and 23.1% in the Midwest. Starts in the South and the West, the hotbeds for the housing over-exuberance that has occurred, fell 15.6% and 16.8%, respectively.
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