Housing Starts Plunge 17% to
Record Low in January
REX NUTTING / MarketWatch 18feb2009
WASHINGTON -- The collapse in the housing industry accelerated in January, as construction on new U.S. housing units plunged 16.8% to a seasonally adjusted annual rate of 466,000, the Commerce Department reported Wednesday, far below the weakest levels of construction in the post-World War II era.
Housing starts have dropped at double-digit rates for three straight months, falling at an 86% annual rate over that period.
Starts are down a record 56% in the past year and are down 79% from the peak three years ago. Read the full report.
The large declines in the past few months could be good news for the economy, on the principle that when you are in a hole, the first thing to do is to stop digging. Builders are trying to reduce their inventories of unsold homes as they face relentless competition from older homes thrown on the market by foreclosures or short-sales.
"Eventually the extraordinarily low level of new homebuilding should help get inventories of unsold homes under control, but for now the drop in new construction is being overwhelmed by the flood of fire-sale-priced foreclosed homes and short sales hitting the market, so foreclosure mitigation efforts will also be key to the inventory situation," wrote David Greenlaw and Ted Wieseman, economists for Morgan Stanley.
Later Wednesday, President Barack Obama will unveil his administration's plans to reduce the number of foreclosures. The plan would reduce housing payments for some families to make them affordable, with the government and the lender subsidizing the difference. See full story.
"Such plans will do more to cushion the blow on the way down than to lead to any appreciable improvement in home sales," wrote Richard Moody, chief economist for Mission Residential.
Housing starts in January were much worse than expected by economists surveyed by MarketWatch, who looked for new construction to drop to a 525,000 annual rate. See Economic Calendar.
Housing starts for single-family homes dropped 12.2% to a 347,000 seasonally adjusted annual rate, also a record low. Starts for multifamily buildings sank 25%.
Building permits, less volatile than the housing starts data, fell 4.8% to a seasonally adjusted annual rate of 521,000, also a record low, the government said. Permits for single-family homes fell 8% to a record low 335,000 annual rate.
Construction activity in the winter months can often be affected by local weather conditions, but construction was weak all across the country in January. Starts fell to record lows in three of four regions in January, while starts in the West dropped to the lowest level in 42 years.
The mood of home builders' has rarely been worse. The National Association of Home Builders reported Tuesday that its sentiment index inched up to 9 in February from a record-low 8 in January.
The government cautions that its monthly housing data are volatile and subject to large sampling and other statistical errors. In most months, the government can't be sure whether starts increased or decreased. In January, for instance, the standard error for starts was plus or minus 11%. Large revisions are common.
It can take four months for a new trend in housing starts to emerge from the data. In the past four months, housing starts have averaged 612,000 annualized, down from 702,000 in the four months ending in December.
In a separate report, the Labor Department said prices of imported goods and services fell a record 12.5% in the past year after falling 1.1% in January. Prices of imported petroleum fell 2.4%, while nonfuel import prices fell 0.7%. The dramatic weakening in the global economy is driving demand for many commodities to the floor, sending prices spiraling down.