| We Needed Falling Starts and Permits in December |
| Written by Jonathan Smoke | |
| 01.17.2008 | |
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Discuss this article on the forums. (0 posts) The Commerce Department reported December housing starts and permits today. Single-family starts and permits both declined further from November, showing a decline that was much more than many expected. But it shouldn’t come as a surprise to anyone seriously involved in and working in this industry, and thankfully, it bodes well for an eventual stabilization of conditions. Essentially both total permits and total starts closed the year at an annual pace of just over 1 million. For single-family units, starts fell below 800,000 and permits fell below 700,000.  This is a reflection of builders pulling back hard on new production to get better aligned with a significant decline in demand. It’s also a clear reflection of the negative sentiment regarding housing at the end of 2007.If you work in this industry, you likely saw this happening in December, as it seemed everyone took an extended holiday vacation. As a result we are at rates of production in line with prior recessions and housing downturns in 1990-1991 and the early 1980s. These metrics are not a negative indicator of the future but rather they are a lagging indicator of the negative performance of the recent months of sales. Builders pull permits and start homes when there is strong demand to support speculative inventory and/or when they have new contracts for “from dirt” new construction. Especially in the current tight credit environment, we should expect to see production falling more rapidly than sales. That is exactly what we are seeing. The last new home sales report for November showed new home sales down 34% year over year. Today’s single-family permits and starts reflect year over year declines of 42% and 36%, respectively. The invisible hand is directing the right moves. Patience will show that inventories eventually will stabilize and begin declining. Now with mortgage rates falling we have a decent shot to see more normal demand re-appear in healthy non-bubble markets as long as consumers quit listening to news about home prices in Detroit, Miami and San Diego. 
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