This mornings release of the housing starts and permits data was a bit of a mixed bag. Starts came in at 1.528 million (seasonally adjusted annual rate, or SAAR), up 2.5% and much better than expected. Most of the strength was in the Northeast where starts jumped 31.3%. The West also put in a good showing with a 7.8% increase. The all-important South region was virtually unchanged, down just 0.1%, and in the Midwest starts fell 14.2%. Last month, the Midwest was anomalously strong, so this month's decline looks like payback time.
On a year-over-year basis, things still look quite weak with nationwide starts down 16.1%, and every region down: Northeast off 4.4%, the West down 6.3%, the South down 13.0% and the Midwest down a severe 42.6%. On a year-to-date basis, nationwide starts are down 26.2%. Year to date, the Northeast is holding up best, down just 16.8%, while the Midwest has been hit the worst, down 40.2%. So are the better-than-expected start figures a sign that the housing market is beginning to bottom out?
I dont think so, and one only has to look at the building permits data to see why. Nationwide permits were down 8.9% to 1.429 million (SAAR), a much worse-than-expected showing, down 28.1% year over year. Worst hit this month in permits was the West, down 14.3% while the Northeast held up best, down 5.4%. The South was down 7.0% and the Midwest was down 8.2%. On a year-over-year basis, permits are down 28.1%. The South and the West are tied for the worst performance, each down 30.9% while the Northeast and the Midwest are down 15.1% and 21.5%, respectively.
Much will depend on the new home sales data due out on 5/24. If it is a weak report, then the increase in starts will be very bad news. There is a huge and growing inventory of unsold houses in the country. That inventory needs to be seriously whittled down before the housing market can really stabilize. I dont think the stabilization will come anytime soon. This housing boom was stronger and more prolonged than most. In every housing downturn since LBJ was in office, housing starts have dropped below 1.0 million. We peaked in January 2006 at just over 2.2 million. I expect that we will again see starts below 1.0 million, so we are probably in about the 4th inning of this housing downturn -- not even the 7th inning stretch.
As a side note, I will be appearing on CNBC today (5/16) at 12 noon and 4pm, Eastern Time (11AM and 3pm Chicago time), discussing the housing market.