| Silver Lining in the Week’s Negative News |
| Written by Jonathan Smoke | |
| 06.20.2007 | |
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Discuss this article on the forums. (0 posts) The news so far this week has been decidedly negative in tone for housing. On Monday, the National Association of Home Builders/Wells Fargo Housing Market Index was released. The index, a gauge of builder confidence and expectations over the short term, was 28 and at its lowest level in over 16 years. “Builder confidence in June slid to its lowest level since February 1991 as concerns about subprime mortgage lending and rising prime mortgage rates soured the outlook for recovery.”
On Tuesday, the government reported that permits, starts and completions, especially for single family detached homes, continue to decline. “The seasonally adjusted annual rate of single-family building-permit authorizations in May was at a rate of 1.06 million in May, down 27.7 percent compared to May 2006. The rate of building permits for units in structures with five or more units reached 379,000 in May, up 1.1 percent compared to May 2006.
While this data is not comforting for those reporting a continuing tough sales environment, on the whole for the country the data show us that the market is seeking a restoration of balance in supply and demand. Overall building-permit activity from January to May fell 25.7 percent compared to the same period last year, according to data that is not seasonally adjusted. The rate of housing starts in May dropped to a rate of 1.47 million, and the rate of single-family housing starts fell 26 percent from the same month last year, to 1.17 million. The May rate for starts of units with five units or more was 271,000, down 13.1 percent from May 2006. Housing completions in May were at a seasonally adjusted annual rate of 1.53 million, down 19.3 percent from the May 2006 rate. And this rate has dropped in every month this year. The rate of single-family completions dropped 19.3 percent year-over-year in May, and the rate of completions for units in structures with five or more units fell 22.5 percent year-over-year.” This may be the bottom, or at least the start of the trough, as many studies, including The State of the Nation’s Housing 2007 indicate that we need starts and completions to be between 1.5 million and 1.65 million, depending on the severity of the inventory problem, to work off the excess.  Further, I find it encouraging that builder confidence is at the same negative level that it was at the bottom of the last housing downturn in 1991.Of course for those dealing with the reality of slow sales and continued high cancellation rates, it’s not positive to think that the remainder of this year may be a long period of low production. But for a sick housing market, it’s just what the doctor ordered. At least at this level of production, we should be in better stead next year. This is exactly what the national housing market needs to restore its strength. And there are many local markets that are already on the rebound. 
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