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| Starts and Permits Continue to Decline, Reflecting Prudence of Builders |
| Written by Jonathan Smoke | |
| 03.18.2008 | |
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Discuss this article on the forums. (0 posts) The Commerce Department reported February permits and starts today. Again the news is not being characterized by the media as good news, but the data continue to show the prudence of builders and others in the industry. Local markets will not return to equilibrium or seller market conditions unless these stats continue to show that new construction is on a diet.  Total permits were down 7.8% over January’s upwardly revised numbers. Total starts were down 0.6%. Of more significance in most areas are the single unit numbers. Seasonally adjusted single unit permits were down 6.2%. Seasonally adjusted single unit starts were down 6.7%.When new home sales are reported next week, I expect that we will see the level of new home sales very close to these permit and start levels. That will be a continuing positive development because permits and starts encompass all types of housing—for rent and for sale. Furthermore, a percentage of permits never turn into starts and likewise a percentage of starts never turn into finished units. You can see in the following chart that New Home Sales (as reported nationally) are always beneath the level of single unit permits and starts. Notice that it is at the bottom of housing downturns when these data series most converge. You can’t converge much more than we already did in January. Statistically these numbers are equivalent. Also notice that new home sales tend to rebound first. The severity of this pullback is unprecedented in the modern era, but the stats prove that at least in aggregate, the new construction market is making the right adjustments that will restore us to health. I also know that these aggregate statistics mask enormous variation in conditions in local markets, specific counties, and individual neighborhoods. If the credit markets don’t send us into an even darker situation, housing is well on its way to fixing its current ills. Don’t mistake proof of taking “doctor’s orders” as a negative indicator for the future. 
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