It just keeps getting better. According to a Reuters report, the construction of new homes for February were the lowest in 27 years and the request for building permits dropped to the absolute lowest level ever recorded. What does this mean? Well, the economy still has no visible mechanism to induce a recovery in the housing sector, and the market is reflecting that. Basically, despite all the stock market gains, real estate is following, or at least in step with unemployment and has yet to bounce back from what is arguably the worst decline in that sector since the great depression.
Another thing to be aware of is the general sense of the reporting. Depending upon who you listen to (we tend to monitor several different sources for news and information in the market) the reports can be spun up or down. For example, this recent number was actually 22,000 housing starts higher than what was initially predicted. The problem is, the total of 618,000 housing starts is still incredibly low. How low? Well, it’s about half of what we saw in 2008 of the same month, and about 1/4th of the 2006 high of 2,273,000. Incidentally, we’re not looking to get back to the bubble – that would be unrealistic, but the sustained, healthy new building numbers seem to be around 1,100,000 historically (rough average based on forecastchart.com numbers). Given those numbers, we’re about half of the healthy average levels right now.
So… according to the Commerce Department, things don’t get any better. The amount of new homes beginning construction fell 22.5% in February to 479,000. This is a smidge higher than a record low recorded in April of 2009. So is this a big surprise? Actually, yes. Yes it is. Economists had been predicting a tiny drop to around 570,000 for the same period. So, things aren’t exactly looking up when it comes to new homes – and it’s not much of a surprise to those of use monitoring the job market in construction. just ask yourself when the last time someone got hired to expand or head up a new construction crew in residential real estate… it’s been a while around these parts.
Everyone seems to recognize that the key issue is the backlog of unsold homes – I mean, it’s tough to justify builkding new ones before the old are sold off and spec homes are extremely rare in this climate. But it’s the uncertain and unstable job market (and frankly, the lack of economic wisdom being employed by the powers that be) that are holding people back on making any spectacular moves or getting excited to step out with a new home. Add to that a massive and growing epidemic of foreclosures hitting the scene and you can see how pessimism is becoming the norm – at least until something changes.
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