After surging in February, home construction reversed course in March, retreating to its second-lowest level ever, the federal government said Thursday. The Commerce department reported that March housing starts plunged nearly 11 percent from the previous month and almost 50 percent from the year-earlier period.
(Image from Forward Capital)
But Patrick Newport, a US economist for IHS Global Insight, said that the data contained some optimism for at least one segment of the market. "The headline numbers are disappointing. But the details indicate that the market for single-family homes is testing the bottom (good news)," Newport said in a report. "Single-family construction was flat for the third straight month."
Richard Moody, the chief economist at Forward Capital, isn't convinced:
There are, however, ample reasons, beyond our inherent nature, to be skeptical as to whether we are truly seeing a bottom. Despite the current low rate of single family starts, the inventory situation is problematic as things now stand and figures to worsen over coming months. With the expiration of holiday season moratoriums, lenders are actively pursuing foreclosures and the Q1 data will show a significant upward spike. Moreover, we believe that the dramatic acceleration in the rate of job losses seen during 2008’s fourth quarter, which has continued into 2009, is not yet fully reflected in the delinquency/default/foreclosure data. Mortgage delinquencies and defaults have considerably higher to go, which will lead to significant numbers of foreclosures over the remainder of 2009 and likely into 2010. These units will be added to what are already elevated numbers of vacant housing units – as of the fourth quarter of 2008, the Census Bureau reported 4.1 vacant housing units for rent and 2.2 million vacant housing units for sale (the Census Bureau’s Q1 report is scheduled for release April 27)… And, to the extent that prospective buyers are able to secure financing, builders are facing increasingly intense competition from the flood of foreclosed homes selling at greatly reduced prices.
So, while new single family construction has been stable over the past few months, any hopes that this does in fact represent a bottom will hinge on new home sales stabilizing or even picking up slightly. Given the constraints posed by labor market conditions, low levels of consumer confidence, and tougher mortgage financing conditions, we do in fact remain skeptical of any claims that new single family construction has bottomed out.