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Housing Starts in U.S. Climb to Seven-Month High July 17, 2009

Posted by John Watch in News Feed.
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Taken from Bloomberg.com

July 17 (Bloomberg) — Housing starts in the U.S. unexpectedly rose in June as construction of single-family dwellings jumped by the most since 2004, signaling the market is stabilizing.

We’ve just recieved news of 1.5 million foreclosures in the first half of the year. This means that including what’s out there, there is a tremendous oversupply of housing in the market, not including any shadow inventory the banks are holding onto. 

Taking this into account, what is the benchmark for “stabilizing?” Public records show that The natural cycle of housing starts levels at around 500,000 to 600,000 when weighed against the natural population cycle. In places with extensive growth over recent years (FLA, NV, AZ etc.) it will take two to three years for a complete absorption.

Stabilization would rid the economy of the drag from declines in residential construction that have shaved almost a percentage point off growth over the last three years.

Again, what exactly is the benchmark for this. 700,000 housing starts? 800,000? 900,000? 1 million? The drag in declines could be attributed to the boom of residential construction in the years prior that brought us into this predictament.

Construction of single-family homes jumped 14 percent, the biggest gain since December 2004, to a 470,000 rate. The fourth consecutive increase brought single-family starts to the highest level since October. Work on multifamily homes, such as townhouses and apartment buildings, dropped 26 percent after surging 66 percent in May.

This is an interesting statistic. First, multifamily, townhouses and apartments have a great surge in May. However single-family starts have had a recent surge, while multifamily, townhouses and apartments have dropped. I wonder what this could be attributed to?

The increase in starts adds to signs that the housing slump may be nearing a bottom. Combined sales of existing and new homes climbed to a 5.1 million annual rate in May, the highest level so far this year.

There’s more factors that need to adressed, besides citing housing starts. With foreclosures and unemployment both rising significantly, how many people will be looking into buying new, single-family homes?

Home starts were down 46 percent from a year earlier, today’s report showed, and are down from a peak annual rate of 2.27 million in January 2006, which capped the biggest housing boom in six decades.

The biggest in 60 years. So maybe that wasn’t a good thing? I wonder, if compared to historical property data, how home starts are doing. Not comparing them to a 60 year occurence.

New-home sales likely will be little changed in coming months because of low consumer confidence and the difficulty would-be buyers have getting loans, Pulte Homes Inc. Chief Executive Officer Richard Dugas said at an investor conference June 23.

Yet, we’re still building.

“Buyers are unwilling and unable to take on new mortgages,” Dugas said at a conference in Boston. “Despite the record fall in prices and the tremendous deal that consumers get relative to the 30-year mortgage rates where they are today, we’re still having difficulty convincing people to get into the market.”

And we’re still building

As stated before, there is natural cycle of population growth, that causes for natural housing starts. An uptick in housing starts is no big news with seasonal activity.

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