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| Declines in Permits and Starts Are the Right Medicine |
| Written by Jonathan Smoke | |
| 09.20.2007 | |
Discuss this article on the forums. (0 posts) The reaction to yesterday’s Commerce Department report on starts and permits sounds as if the news is bleak. Of course watching a key stat continue to fall seems depressing, but it’s the medicine that the housing market needs to take to get things back into a better state for stability in prices and future sales. The key will be taking this medicine as directed for the full prescription.According to the Commerce Department data, annualized total housing starts declined to a 12-year low of 1.331 million in August 2007, or a decline of 2.6 percent over July. Total permits likewise dropped 5.9% percent from July to an annualized level of 1.31 million. Single family permits fell further—dropping 8.1% from July to an annualized level of 926,000. Single family starts fell 7.1% to 988,000. Utilizing the equilibrium measure that we applied to local markets in recent posts, we can see what kind of hole we have to work ourselves out of. Due to the declines we have experienced in the last 18 months, we are crawling our way up. If the current forecasts for constrained, and in many cases even further declining, permits and starts continue, we should make great progress and see daylight from better balance around spring of 2008. And if you didn’t need proof that this is still a cyclical business, the pendulum on balance will likely start to swing as permits and starts are not expected to pick up again for another year, but demand will grow. By spring of 2009 it may look more like a seller’s market again, at least from a supply and demand perspective. 
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