Update: New Home Starts

New Home Starts came out this morning, and they were nothing to get excited about. Here’s the data:

Privately-owned housing starts in February were at a seasonally
adjusted annual rate of 1,525,000. This is 9.0 percent (±10.2%)* above
the revised January estimate of 1,399,000, but is 28.5 percent (±6.2%)
below the February 2006 rate of 2,132,000.

Single-family housing starts in February were at a rate of
1,220,000; this is 10.3 percent (±8.8%) above the January figure of
1,106,000. The February rate for units in buildings with five units or
more was 266,000.

Note that Privately-owned housing starts, with a headline number of
plus 9%, is less than the margin of error of ±10.2%, and according to Census Bureau, "is not statistically significant; that is, it is uncertain whether there was an increase or decrease."

Note, however, that on a year-over-year basis, Starts are down 28.5%, (margin of error of ±6.2%).

This is the Census Bureau chart; curved lines are my approximate moving average . . .

Courtesy of U.S. Census Bureau


New Housing Units Starts
February 2007

MARCH 20, 2007 AT 8:30 A.M. EDT
Manufacturing and Construction Division

Economic Indicators 

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What's been said:

Discussions found on the web:
  1. Fred commented on Mar 20

    Where do we stand on inventories (vs. consensus expectations)?

    Thanks Barry

  2. Larry Nusbaum commented on Mar 20

    “Note, however, that on a year-over-year basis, Starts it is down 28.5%, (margin of error of ±6.2%).”
    1. New homebuilds represent only 15% of the entire housing market.
    2. Starts being down 28% (again) as they were in the second half of 2006 is a good thing. It means fewer homes being completed for sale and then added to an already bloated new-home inventory.

  3. Barry Ritholtz commented on Mar 20

    Well, less new inventory is a good thing for those with inventory to sell;

    Overall for the economy, its less new jobs, less consumer spending, etc.

  4. ManhattanGuy commented on Mar 20

    Did anyone dare to take a contrarian view on the RE market? Seems like everyone and their mom are negative on the real estate market.

  5. mark commented on Mar 20

    remember that all housing is just 6 % of gdp. additionally most if not all builders at this point do not start a house unless a signed contract is in hand. It means that any new house inventory is slowly burning off. Big Ben and dudley dooRight have got their fingers on the pulse so there is nothing to worry aobut….right? …unless of course there is no pulse.

  6. Josh commented on Mar 20

    I saw an opinion or maybe a study that said for every 1,000 homes built, that employed somewhere around 2,500 people and $100 million in payroll. Completed homes finally made a move down and if it can keep up the pace its on, it will mean around 700,000 jobs lost at a payroll cost of $3 billion.

    Not a good thing for the economy. Good for slower inventory build sure, but inventory will be getting increases from all the foreclosures.

  7. Larry Nusbaum commented on Mar 20

    “Did anyone dare to take a contrarian view on the RE market?”
    The real estate market is very healthy. Just look at hotels, office, apartments, land, malls, strip centers, etc. If you mean housing then, read the CPI report and note how apartment/house rents are going up rapidly. The last time that happened was in 1993-1996 and a housing recovery turned bull market soon followed.

  8. MTHood commented on Mar 20

    “additionally most if not all builders at this point do not start a house unless a signed contract is in hand.”

    Perhaps that’s true, but you must also match that factor with the fact that homebuilders are accepting smaller and smaller deposits to get that “signed contract.” Hence, it is easier for buyers to walk away.

  9. mark commented on Mar 20

    how many of those lost construction jobs were being held by immigrants? I m not sure how this would play into it. does anyone care to venture an opinion? I remember seeing crew after crew and wondering how pissed off a citizen drywaller must feel seeing all this work disappear.

  10. toddZ commented on Mar 20

    Later this year housing starts will become less important to the inventory story. More important will be the level of foreclosures hitting the market and the scarcity of favorable loans available to buyers.

    I’m pretty surprised that Alt-A loans are defaulting faster than sub-prime. That is not a good sign of things to come…

    As lenders start to shy away from sub-prime and teaser loans, there will be fewer opportunities to sell the backlog of inventory.

    What has not been discussed enough, though, is the power of foreclosure to affect prices. Consider this article:

    Houses cheaper than cars in Detroit

  11. Damian commented on Mar 20

    “remember that all housing is just 6 % of gdp” – yes, but of course the real worry out there is spill-over into the general economy from MEW going away – Barry has published the slides before, but something like 2% of the GDP was estimated to have been created by MEW. So the end question is always the same here in the US: does this (or anything) stop the consumer?

  12. Larry Nusbaum commented on Mar 20

    Mark: Here in Arizona one can guess that 90% of the housing constuction labor comes from Mexico. There is simply no way for me to guess what % of those are documented…..

    What I can tell you is that the major (public) homebuilders represent only 25% of the new home build market, which is about 15% of teh entire housing market.

  13. Michael Schumacher commented on Mar 20

    re: Larry Nussbaum

    Are you the new NAR economist??

    Take a look at non-commercial RE which is what most of the real statistics are based on not strip malls, office, hotels as those have a vastly different cycle. There will always be a market (that ebbs and flows differently from the classical housing market)for commercial RE that is far removed from what the article is pointing out.

    But you knew that.


  14. Larry Nusbaum commented on Mar 20

    “What has not been discussed enough, though, is the power of foreclosure to affect prices.”

    In economically depressed areas like Detroit, yes. In vibrant economies like Phoenix, probably no. I believe that the foreclosure and pre-foreclousre market will boom here and all properties can get absorbed by investors….

  15. Ben commented on Mar 20

    Re: Contrarian view on RE market. Recent home buyers are probably bullish.

  16. ZackAttack commented on Mar 20

    Dan Carty was contrarian here…


    Scroll to the first 3/19 entry. He put on some HOV.

    Icahn was too, much to the dismay of my WCI short. I still have no idea what he sees in this company.

  17. Craig commented on Mar 20

    Larry, if all is well with you we are happy, but it is impossible for us to seperate your possibly well-meaning talk from you talking your book.

    For many of us in average markets our homes are going to depreciate, interest rates are going up and credit is tightening up the ladder. That’s just how it is. For those of us over about 50 there is no making this pig’s ear look like anything but a dog chew.

    The psychology in such situations doesn’t incent people to take chances with their equity to buy the falling knife with equity/investment funds. The psychology is to wait out the riff raff and buy the bottom or foreclosures. Thus investors like you don’t buy now in any market, you, if you are smart as I think you are, will wait for foreclosure time and be a value investor.

    After some of the loss is charged off there may be investors. That won’t be any time soon anywhere but markets that suck so much they never go up.

  18. Josh commented on Mar 20

    Yeah Larry, its going to be all roses in Phoenix!

    Investors will buy all the foreclosures so they don’t affect the price of the other homes. All is fine.

  19. Cherry commented on Mar 20

    Starts need to fall into the 1.2-1.4 range to cut inventory. So far starts are averaging about 1.43-45(after revisements are completed of course) this year, which isn’t good enough. Though with the mortgage bust spreading onto builder loans, they should be down to 1.2 by fall and may fall to .8-1.000 range by 2008, then a sluggish trend upwards.

    I usually take the 6 month half year average of starts.

  20. Larry Nusbaum commented on Mar 20

    Sorry Michael, I never sold a house in my life. Btw, who is David Lereah?

  21. V L commented on Mar 20

    “Starts being down 28% (again) as they were in the second half of 2006 is a good thing. It means fewer homes being completed for sale and then added to an already bloated new-home inventory.”


    Are you for real?

    Economics 101 for Larry Nusbaum:

    GDP = consumption + investment + (government spending) + (exports − imports)

    Starts being down 28% means consumption and investment will be DOWN.

    What do you think will happen to GDP? (Assuming our government does not increase the current out of control borrowing and spending)

    Can you please explain how it is “a good thing” for the economy and GDP?

    P.S. Investment is divided into non-residential investment (such as factories) and residential investment (new houses).

  22. rebound commented on Mar 20

    “remember that all housing is just 6 % of gdp”

    I don’t think this is correct. Barry stood in for John Mauldin a while back and I remember seeing a chart like this in his report:


    Take a much closer gander at the percentage of GDP. The MEW factor is huge.

    The Mauldin Newsletter was titled:

    Real Estate and the Post-Crash Economy
    by John Mauldin (Barry in this case)
    December 29, 2006

  23. donna commented on Mar 20

    Larry’s in commercial real estate, where there are no problems.


  24. bizzXceleration: Performance, Value and Profit commented on Mar 20

    Headlines vs Realities: New Home Sales

    A lot of data that is critical to understanding where the economy is headed and what the context for businesses and investors has come out in the last few weeks – including Durable Goods Orders,Employment, CPI/PPI and, today, New Home…

  25. my1ambition commented on Mar 20

    Interesting Barry. And were in a season months thats apparently the best…

    (and people – Short United or at least don’t buy their shares, I just flew international and they did nothing right, they have people that should be laid off and are missing personel when necessary).

  26. bubba commented on Mar 21

    Larry’s housing starts down is a “good thing” reminds me of this Fox News onscreen caption:

    “All-Out Civil War in Iraq: Could It Be a Good Thing?”


    you simply can’t make this sh$t up!

  27. philip commented on Mar 21

    The builders have little choice but to drive into the wall as fast as they can. They have costs they can’t get rid of, so they just have to build out everything that was in the pipeline, including land that was purchased but is no longer really needed. As long as they take less loss from building than by not building, they will build. This is terrible news for anyone in residential real estate that isn’t a home builder, and bad news even for the home builders. But how else could it play out?

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