How good the housing starts news was yesterday was in the eye of the beholder. According to Bloomberg:
Builders in the U.S. began work on the fewest homes in 12 years in August, raising the risk the real- estate recession will spread to other parts of the economy.
The housing slump may deepen after borrowing costs rose and lenders shut off access to credit, causing growth to slow even more, economists said. Federal Reserve policy makers yesterday lowered the benchmark rate by a half point to prevent a broader economic slowdown.
Shares of most homebuilders surged Wednesday after reports showing companies in the sector are building fewer homes offered hope for a recovery.
I’m not completely convinced that the homebuilder rally was sparked by the housing starts figures. I think it more likely that traders were still punch drunk after Tuesday’s rate cut.
Privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,331,000. This is 2.6 percent (±7.3%)* below
the revised July estimate of 1,367,000 and is 19.1 percent (±6.5%) below the revised August 2006 rate of 1,646,000.
Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,307,000.
This is 5.9 percent (±1.4%) below the revised July rate of 1,389,000 and is 24.5 percent (±1.3%) below the revised August 2006
estimate of 1,731,000.
While lower starts are indeed what are needed to bring balance back to the housing industry, while starts and permits look like this:
New home inventory looks like this: [Last data released by Commerce Dept. in July]
Neither rate cut, nor pullback, nor government bailout is going to stop the unwinding from its appointed rounds. This thing is going to take awhile.