Friday, July 17, 2009

Long-Awaited End of Home Building Bust is Here

From today's Census Bureau report on New Residential Construction:

HOUSING STARTS: Privately-owned housing starts in June were at a seasonally adjusted annual rate of 582,000. This is 3.6% above the revised May estimate of 562,000, but is 46% percent below the June 2008 rate of 1,078,000. Single-family housing starts in June were at a rate of 470,000; this is 14.4% above the revised May figure of 411,000.

MP: Single-family housing starts have increased for the last four months in a row (March, April, May and June), the first four consecutive month increase for single-family starts in four years (see shaded areas in chart above). This four-month positive trend follows 9 consecutive monthly declines in single-family starts going back to June of last year, and declines in 19 out of the previous 20 months going back to July of 2007.

According to Brian Wesbury and Robert Stein: "We are now witnessing the long-awaited end of the bust in home building and the birth of what will be a substantial recovery in residential construction over the next few years."


At 7/17/2009 10:34 AM, Anonymous Anonymous said...

Once again, good ol' Anonymous told you this was coming.

Expect to see a similar story coming from the auto sector soon.

At 7/17/2009 12:48 PM, Blogger Dave Narby said...


They posted the eighth worst number EVER.

This is not good news, it is less bad news.

Anybody stop to think what happens if it only gets a tiny bit better from here... And then stays there?

We have yest to absorb the overcapacity in housing.

At 7/17/2009 3:09 PM, Blogger Dave Narby said...

Per Karl Denniger ( ) on this topic...

How do you sell down the existing inventory, including the hidden inventory of foreclosures, when these fools are still building houses?

I get it - its summer, that's when you break ground on houses. This allows you to get the framing and exterior up before it gets cold and snows.

But we have millions of homes that have been foreclosed or will be foreclosed, and we have an insane amount of existing "listed" supply on the market. In the apartment/condo marketplace in some markets there is literally five or more years of supply! Go down to Miami and take a drive around at night - brand new buildings, open, occupied, with four or five lights on at night.


Building more into this sort of market environment is criminally insane. It is guaranteed to destroy the comparable values due to competition and will absolutely decimate lenders who are holding back foreclosures instead of putting them on the market.

The futures spiked a fair bit on this news release, but you have to wonder why anyone would consider this "bullish" news? Bullish for who? Foreclosure lawyers? Courthouse fees?

It is truly unbelievable that builders would be ramping construction into this market environment. I thought I had seen everything stupid under the sun, but this, among all else, takes the cake, even though these figures are coming off deeply depressed levels.

We need less construction, not more, until we clear the excess inventory - this sort of "build into a severe inventory overhang" is how you go bankrupt - with certainty.

What lending institutions are funding this sort of thing? Where are the bank regulators? The FDIC and OCC? The Fed?


I smell lots (hundreds) of bank failures about a year down the road out of this when that inventory is unable to be sold and the construction loans default.

I'm stunned - literally.

At 7/17/2009 4:14 PM, Anonymous Anonymous said...

Brian Wesbury on June 17, 2007. What a moron. That's why he is Perry's go-to-private-sector economist. Get the picture. ROTFLMAO.

At 7/18/2009 3:43 PM, Blogger Hot Sam said...

@Dave Narby

Yes, we can expect about 500 bank failures in the next few years. The FDICs Sheila Bair has already said so. There are over 350 institutions on the problem bank list.

As for new home building and lending for it, not enough info to say. There are still growing housing markets in small pockets of the US. You can't easily move a surplus of houses in one area of the country to another. Regulators examine asset quality only from a small sample of total loans. The loans either pass (as performing) or are classified as substandard, doubtful or loss. From this the regulator assigns the asset quality rating.

Regulators do not (nor should they nor can they) micromanage every loan a bank chooses to make. Regulators do not examine lending practices for anything other than consumer compliance although the Management rating can take a hit from holding concentrations of risky loans. If a bank originates a risky loan and sells it, it is not reviewed for them. It's reviewed for the institution which owns it. This loophole is part of the current housing bubble, but regulators have their hands tied by laws. Congress is the problem. You should not believe regulators are omnipotent.

Yes, this is peak building season and looking at month over month statistics at an historically low level of construction is absolute drooling nonsense. You have to look at where those housing starts are located, not take a national snapshot. All housing is local.

This chart is an example of the kind of voodoo you get from macroeconomists who enter the domain of microeconomics.


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