Finally Good News For Housing: Construction Plummets

We have been talking about housing here a ton lately and finally have some good news to report.

First, here is some of the previous conversations: 5/6, 5/13, 5/15

Today:

The Commerce Department said Tuesday that construction of new homes and apartments fell 12.8 percent last month to a seasonally adjusted annual rate of 458,000 units, the lowest pace on records going back a half-century.

In a disappointing sign for the future, applications for new building permits dropped 3.3 percent to a new record low annual rate of 494,000.

Economists had expected home construction and building permits to post modest increases in April as signs that the worst collapse in housing activity in the post-World War II period was drawing to a close.

Even in last month’s big decline, there were some signs of stabilization. Construction of single-family homes rose 2.8 percent to an annual rate of 368,000, following a 0.3 percent gain in March and no change in February. The stability in single-family construction likely will be viewed as a hopeful sign that the three-year slide in housing could be bottoming out.

The weakness last month came in the more volatile multifamily sector where construction plunged 46.1 percent to an annual rate of 90,000 units after a 23 percent fall in March.

Housing construction fell 30.6 percent in the Northeast, the largest drop for any region. Housing starts dropped 21.4 percent in the Midwest and 21.1 percent in the South.

The article misses the point. We have too much supply and a permanently depressed demand situation in housing due to current foreclosures and tightened credit markets. If that is true (it is), then the ONLY way housing prices firm is for supply to be reduced.

The fastest way to do that is on the production end of the equation by slowing or stopping the rate of new homes hitting the market. This forces price firming for those new homes currently out there and also increases demand for “used” housing for sale. Is more needed? Yes. It this a step in the right direction? Yes. If it rebounds next month and rises, proving this to be a 1 month anomaly is it bad? Yes.