March Housing Starts and Permits

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INDICATOR: March Housing Starts and Permits

KEY DATA: Starts: -11.9%; 1-Family: -5.7%; 1-Family Permits: -6.2%

IN A NUTSHELL: “The construction decline continues almost unabated and if this continues, pretty soon there will no longer be any firms around that can be called builders.”

WHAT IT MEANS: Housing starts plummeted in March as builders stopped being builders and developers did very little developing. The biggest decline was in multi-family activity, which was off nearly 25%. Single-family starts fell sharply as well and from the peak, this key segment is down nearly 65%. In the last twenty-five years, the annualized level has been lower only once. The pain was spread across the nation though the South and Midwest did post double-digit declines while the Northeast and West were off only single-digits. The only number in the black was single-family starts in the Northeast, which barely rose. The rise was not statistically significant, though. And things could get worse as permit requests were off sharply as well. At least the number of homes under construction keeps falling and that is good news as the supply coming on the market is limited. Indeed, the number of single-family homes being built is the lowest in about twenty-three years.

MARKETS AND FED POLICY IMPLICATIONS: Basically, we are at depression levels when it comes to home construction. Can construction fall further? Of course, especially with so many people having problems getting mortgages and with builders doing their best turtle impressions. But I still believe that the bottom is close given the miniscule rate of activity. Residential construction should once again be a major drag on growth and that puts a negative first quarter GDP number into play. With the FOMC focusing on the deteriorating housing market, you would think that this report would put pressure on the Committee to ease sharply. But the problem is not the level of mortgage rates but the tightness in the credit markets that is limiting mortgage activity. Lowering rates does very little to convince lenders to lend. The excessive caution has to be broken before housing will turn up. And that is what the Fed will likely be concentrating on accomplishing.

Joel L. Naroff, Commerce Bank

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