Housing Starts are at the lowest level in 17 years

The U.S. Census Bureau and the Department of Housing and Urban Development announced the new residential construction statistics for December 2007.

Housing starts were at their lowest level since 1991. Besides 1991, you have to go back to the 1982 recession before starts were lower than the December 2008 numbers.

Building permits in December were down 8.1% from November and were down 34.4% from December 2006. Housing starts were down 14.2% from November and were down 38.2% from December 2006. Housing completions in December were down 7.7% from November and were down 31.0% from December 2006.

These are seasonally adjusted numbers that account for typically slow numbers in December. The actual numbers were down further.

Here is a chart of permits, starts, completions and sales. You can click on it for a larger view.


New Housing permits, starts, completions and sales, typically follow each other closely. Once builders obtain their permits, they start building soon. There is usually about a 6 month lag in completions. Calculated Risk puts out great charts on the lag factor.

One thing that stands out on the New Housing chart is the amount of New Housing Sales and New Homes for Sale. There has never been this many new homes for sale. Looking at the past peaks of construction, the amount of homes for sale did not rise as much as they did this time. More homes were being built for use or rentals and where not being built to sell to consumers to the degree that they were in this housing cycle. Also the new homes for sale is being understated. The Census Bureau does not account for cancellations. If a new home falls out of contract, the Census Bureau still counts that house as a sale and does not raise the new home inventory.

Based on the cancellation rates reported by some of the major builders, Calculated Risk has estimated that New Homes Sales are overestimated by 100,000 and new home inventory is underestimated by same amount.

Here is a chart comparing new housing starts and the GDP.

New housing and GDP have correlated very closely up until this recent housing boom. The divergence in 1968 was accompanied by the Vietnam War (this post on GDP and some of its components had a graph of Defence Spending).

The economy would not have grown as much without the housing boom and the mortgage equity withdrawals that came with it. As discussed earlier in the GDP post, housing is the most important component in the business cycle. The 4th quarter 2007 GDP figures are due to be released on January 30, 2008, but we already know that housing will be a drag on GDP.

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