housing starts

Pessimism is back among usually optimistic homebuilders. The Commerce Department reported yesterday that construction of new homes and apartments declined 5 percent in June. The drop was a result of a 20 percent plunge in the condominium and apartment market. Single-family home construction fell 0.7 percent. Builders are being forced to compete against a glut of foreclosed homes. On the bright side, there was a 2.1 percent increase in building permit applications, indicating a somewhat positive outlook regarding the future.

What happens when there is bad housing news that nobody hears? Is it like the proverbial tree falling in the forest? Does it mean the bad news won't have a negative effect?

New construction of homes dropped by 10 percent in May from the previous month, to a seasonally adjusted 593,000, according to new figures released by the U.S. Commerce Department. The driver is clear: A 17.2 percent drop in single-family home starts after the expiration of the homebuyer tax credit at the end of April. The outlook isn't great, either. Building permits for new homes dropped 5.9 percent.

The data looks bad from almost every angle. The level of new home starts, at 593,000 units, is at its lowest since December 2009, while the rate of decline was the sharpest since March 2009. The drop in single-family home construction is the steepest since January 1991.

But while the figures were worse than most analysts polled by Thomson Reuters had expected, many experts are shrugging them off.

We're all in a quandary about where the real estate and housing markets are going. Is it up or down or sideways, double-dipping or stuck in neutral? A welter of statistics -- from the Case Shiller Home Price Index to anecdotal stories on the street -- suggest movement in any number of directions.

Intrigued by a report that a Pleasanton, Calif., company you probably never heard of had a surprising surge in sales in the first quarter of 2010, HousingWatch dug a little deeper around the edges to see how the nuts-and-bolts industries related to housing are faring,

Simpson Strong-Tie, a subsidiary of Simpson Manufacturing, just reported sales of its structural connectors; anchors and other products for new construction; retrofitting; and D.I.Y. markets had grown by 13.4 percent over the same quarter a year ago.

Growth was strongest in the Midwest and West (excluding California) and the Northeast, but flat in California and the Southwestern states.

This must be good news for the housing market, right? Not so fast.

For several months, pundits and economists have warned that demand for housing and housing prices would fall steadily for the first six months of this year, after the end of a brief recovery last year.

Well, it hasn't happened yet. In fact, the latest stack of housing reports for March shows the opposite -- a mini-housing boom is taking root for springtime. Existing homes sold at a seasonally-adjusted rate of 5.35 million a year in March. That's up from 5.01 million in February, according to the National Association of Realtors. Even better, new homes sold at a seasonally adjusted rate of 411,000 a year after hitting a record low of 324,000 in February, according to the Commerce Department.

These latest reports follow strong news on new home construction and pending home sales. Several reports also revised their February estimates upward to show that the demand for housing is strengthening, not failing.

But don't celebrate too hard. We're calling it a "mini" housing boom for a reason.

It was a year ago in April that Federal Reserve chair Ben Bernanke declared he detected the "green shoots" of an economic recovery. But 12 months later, a lot of homeowners are left wondering why a significant housing recovery never seemed to blossom. Well, this spring, the green shoots are back. But this time, they're sprouting buds. The most encouraging evidence that a mini-housing boom is taking root this spring? Developers have started building new homes at their fastest rate in over a year.

Home builders started work on houses and apartments at a seasonally adjusted annual rate of 626,000 in March, according to the latest data from the U.S. Census. That's up from 616,000 in February and up even more from most of last year, when housing starts ranged between 521,000 and 593,000 per month.The new construction follows a jump in pending home sales for February and an increase earlier this month in mortgage applications by the Mortgage Bankers Association.

But is the housing recovery for real this time?

The U. S. Department of Commerce reported earlier this week that housing starts for January hit a six-month high, growing 2.8 percent to an annual adjusted rate of 591,000 new units. Therefore the housing crisis is ending, we're told: end of story, if we build it they will come.

Not.

Housing starts refer primarily to building permits, which have to be in place generally before builders and developers can get construction financing -- financing that is very hard to come by in the current economic climate. So a start doesn't inevitably mean a finish nor even a true beginning of construction. There are other statistics for those -- statistics the Commerce Department in this case chose not to highlight.

That roar you heard last month was the sound of builders pounding nails and digging the foundations of new homes, which they did at a faster rate in January than any other time in the last year.

Housing starts rose to a seasonally-adjusted annual rate of 591,000 per year in January, according to the U.S. Census. That makes January the top month so far in what has been a long steady rise in housing starts from its low point at 479,000 last April.

But we're still a long way from a healthy housing market. Put in context, the January numbers are still less than a third the rate in 2006 and less than half the rate in 2007. The economists at Freddie Mac predict the rate of starts will continue to rise, but won't reach 2007 levels until 2011.

Here's another clue that the mini-recovery in home building should continue. Applications for building permits -- a reliable omen of future construction activity -- were made at a quicker pace in January than any month in the last year except December.

If you're looking for a sunny outlook on the economy, skip the International Builders' Show in Las Vegas.

The outlook for home builders is poor with only a slight chance of recovery in 2010. Ongoing joblessness and steady foreclosures are keeping U.S. builders from feeling confident about a quick recovery for the housing market, say economists at the industry pow wow.

"Builders realize that factors beyond our control – including consumer concerns about job security and competition from foreclosed homes on the market – are still impeding demand for new homes at this time," says Joe Robson, the chairman for the National Association of Home Builders.

More green shoots for the housing markets: Builders started digging the foundations of new homes in November at a seasonally-adjusted annual rate of 574,000 per year, according to the U.S. Census.

That's up 9 percent from the annualized rate of 527,000 starts for October, a slow and unusually rainy month, and closer to the annualized rates over the summer that peaked at 593,000 in July.

The mini-recovery in home building should continue. Building permits, a sign of future construction, climbed to the highest level in a year.

So why is this good news? Builders are starting work on new houses while more than half a million homes are already listed for sale. With whole subdivisions standing empty on the outskirts of sprawling towns like Phoenix, shouldn't we finish selling the houses we have before we build new ones?