Starts are going to kill the builders. When these are completed in 6mo they will selling into an epic resale glut coupled with a record REO inventory at a time when buyers have vanished.
If we get any further immigration crackdown (there are still immigrants that come with $$$$$$), demand will contract even further. I expect some HB BK filings late this year. Debt service should kill the marginal HBs as credit ratings agencies lower scores...
Am I correct in assuming that permits are a fairly good forward leading predictor of starts? If so, starts probably have quite a ways to fall.
IMO, the problem with ascribing the strength in construction employment to undocumented workers (who are let go first) is that we need an explanation for why this group of workers would be counted on the way up, when they were hired, but not on the way down, when they are laid off.
Also 2 reasons on employment:
1) illegals or
2) no more in house crews for builders, now they bidd all the sub jobs out to get the lowest PPSF; framers,drywall, etc
I have a mgmt friend at Ryan does this every thursday...calling listed subs
and the crews that dont get it this week get it next maybe..
and since they are independent they know the hassle of filing UE is fruitless
To illustrate the extent to which permits and starts have declined, I have created the following charts (click for larger versions) that show the percentage changes of the current values compared to the peak years of 2004 and 2005.
Notice that on each chart the line is essentially combining the year-over-year changes seen in 2005 and 2006 and shows virtually every measure trending down precipitously.
Although year-over-year declines to permits, for example, have not accelerated measurably from September 2006, the fact that they continue to decline roughly 30% should provide a solid indication that they are by no means stabilizing.
many unskilled, subcontractors don't pay taxes, both legals and illegals. The employment figures are under reported during the boom and over reported during the bust.
Unless the figure are just wrong it seems self evident that many builders are not overly intimidated by the current environment. And why should they be? They made massive profits on the way up and can continue to make good profits on the way down. If americans prefer new to old it will be old that is trashed pricewise relative to the priced to sell at a profit new. Until people actually begin telling me that builders are not actually building i am going to believe that employment has not fallen because well....you get it!
--
Two phrases, bottomed and stabilizing are being used buy bubble-meisters. We only know 6-12 months after the fact if some trend has reversed. Until then, the fundamentals of Vacant Units (piling up) dictates that starts and permits have a long way to go. And I mean into 6 digits.
--
I seriously doubt that most people prefer new to the old. 3-5 year old house is ideal because everything has been fixed and you got lot of planting taken care of, etc. New home owners put in a lot of free labor in making homes more livable.
Hre is a little more color (ok its pretty dry so maybe the color is grey) on this mornings numbers, cross posted from the Zacks.com blog
This mornings release of the housing starts and permits data was a bit of a mixed bag. Starts came in at 1.528 million (SAAR), up 2.5% and much better than expected. Most of the strength was in the North east where starts jumped 31.3%. The west also put in a good showing with a 7.8% increase. The all important south region was virtually unchanged, down just 0.1% and in the Midwest starts fell 14.2%. Last month the Midwest was anomalously strong so this months decline looks like payback time. On a year over year basis things still look quite weak with nationwide starts down 16.1%, and every region down: Northeast off 4.4%, the West down 6.3%, the South down 13.0% and the Midwest down a severe 42.6%. On a year to date basis, Nation wide starts are down 26.2%. Year to date the Northeast is holding up best down just 16.8% while the Midwest has been hit the worst, down 40.2%. So are the better than expected start figures a sign that the housing market is beginning to bottom out?
I dont think so, and one only has to look at the building permits data to see why. Nation wide permits were down 8.9% to 1.429 million (SAAR), a much worse than expected showing and are down 28.1% year over year. Worst hit this month in permits was the West, down 14.3% while the North East held up best, down 5.4%. The South was down 7.0% and the Midwest was down 8.2%. On a year over year basis, permits are down 28.1%. The South and the West are tied for the worst performance, each down 30.9% while the North East and the Midwest are down 15.1% and 21.5%, respectively.
Much will depend on the new home sales data due out on 5/24. If it is a weak report, then the increase in starts will be very bad news. There is a huge and growing inventory of unsold houses in the country. That inventory needs to be seriously whittled down before the housing market can really stabilize. I dont think the stabilization will come any time soon. This housing boom was stronger and more prolonged than most. In every housing downturn since LBJ was in office, housing starts have dropped below 1.0 million. We peaked in Jan.2006 at just over 2.2 million. I expect that we will again see starts below 1.0 million, so we are probably in about the 4th inning of this housing downturn, not even to the 7th inning stretch.
As a side note, I will be appearing on CNBC today (5/16) at 12 noon and 4pm, Eastern time (11AM and 3pm Chicago time) discussing the housing market.
This report involved housing data, mainly building permits and housing starts. YOY, building permits and housing starts were -28% and -16%, respectively. MOM, building permits and housing starts were -8.9% and +2.5%, respectively. So we see, 3 of 4 data points were down sharply but one was up only slightly. But guess which one made the headlines. You guessed it Housing Starts Rebound. Going with this charade for a little longer, considering there is a glut of unsold homes on the market and this Spring selling season has been and will continue to be a dud, a reasonable person would think that an increase in housing starts would only worsen the housing sector. What a sham the entire economy has become. Buy physical gold and silver to offset the coming carnage.
There should be a very solid correlation between permits and starts with an average lag of only two or three weeks by the starts. You don't pull a permit until you are ready to build because you have to pay for the permit.
The BLS is showing net construction jobs added so far this year (including a large positve plug in the April birth/death add), while the ADP survey is showing a net loss, so perhaps the BLS survey will post a large catch-up in construction job losses over the next couple of months? Also note that these surveys don't count under-employment: ie. a construction worker who was working 60 hours a week in 2005 is still counted as employed if they're working 20 hours a week now. What percentage of the construction industry are self-employed contractors? They won't be removed from payrolls until a few months after they go bankrupt.
Ignore the stats. As CNBC just noted while showing clips of Dirk, the margin for error on that +2.5% number is 9%! On the northeast increase of 31% starts, the margin is 41%!!! These are meaningless.
Nothing, absolutely nothing is trending in the opposite direction from what CR, and common sense told you for the last year or more.
When Greenspan said we were at bottom, he was wrong.
When the homebuilders said that things were bottoming and looking up, they were wrong (and the return to 30 on the NHAB sentiment proves that).
Everyone, absolutely everyone who has predicted anything other than a housing bust with steady (aleit) slow worsening has been dead wrong.
The worst is still yet to come as again CR and common sense has been telling you.
The ONLY thing going the other direction is the DOW. (with Nas and S&P being reluctantly dragged along kicking and screaming).
Take a step back and look at the big picture. The trunk aint a snake, the tail aint a worm and the leg aint a tree....The damn thing is an elephant, the elephant in the room, and it's about to squish these blind mice.
For builders today, at least in my So Cal city, they are FORCED to keep building. They have 20% built masterplanned neighborhoods where the've alrady paid for the streets, sewers, and huge association clubhouses with pools. The builders are paying the HOA's for the 80% yet to be completed. They have built schools with the expected Mello Roos. They are absolutely forced to keep building and will do so until they hit BK.
This will mean delaying the inevitable and make for a much more sudden and interesting moment when it all blows up.
Thanks to Tanata, we now understand why Mortgage applications numbers don't truly reflect actual applications. One of the reasons, many smaller lenders have closed shop.
Since many small home builders may have given up, can start numbers be misleading as well?
I agree with AC - by definition, permits provide an upper limit on starts. But the number I'm really watching right now is completions. Permits may be dropped (and won't be reported if so), but completions are reported and therefore reliable after a few months of revisions.
Still, I don't understand how anyone can believe that the housing slowdown is going to reverse this year when the permit numbers keep going lower.
And almost all of the MoM starts increase was produced by the downward revision for March. This is becoming a pattern.
Jas, using my numbers, it will take about 10 years (at this level of starts) to work off the excess inventory. That is why I think starts will fall much further at some point - my estimate was the bottom for Starts would be around 1.1 million units SAAR.
It does look like my demand number is about right.
Bill, Permits really don't tell us much. If you plot both permits and starts, they pretty much move together. As far as employment, this is a real puzzle (and it's not just illegals). I've been contacted by two Fed economists lately that are trying to figure it out. There are many parts to the puzzle, but one of the main concerns is the BLS is missing the turning point - so employment may be weaker than reported.
It does look like my demand number is about right.
Is this the 1.7m number?
Also, does this number make the assumption that all these people are viable candidates to receive financing?
Whatever the intrinsic demand for housing may be, I believe that at today's prices the percentage of these would-be buyers actually qualified to buy homes is greatly reduced.
In other words, the more of this intrinsic demand that is satisfied, the more financial mayhem ensues in the future.
Only a lag of few weeks between permits and starts? I thought that it would be 2-6 months. BTW, the Permits data doesn't count mom-and-pop builders. The same may be true of Starts. It is entirely probable that the supply side is under reported. Any comments, CR?
IMO, the Total Units surveys take care of all the new build and the deaths of old ones (demolished).
Jas,
Typically a permit is issued only after the plans are reviewed by the local building inspections department and the builder pays for the permit when he picks it up (he needs it in hand to begin construction). The link, in my experience, is very close - days or a week or so. It would also be rare to 'drop' a permit and not start a project.
Permits are different than zoning approvals, etc., which could lead by months.
ac, many months ago I calculated that "normal" demand for new housing units would be around 1.7 million units per year. This is based on the number of new households being formed, and the number of units destroyed each year.
There were several important caveats: first, there were too many units built in recent years - there are something like 1.4 million excess units (some estimates as high as 2+ million excess units) that need to be worked off.
Second, demand depands on price. If the price was low enough, many more people would own two homes! So this is just a rough estimate. Also the number of units demolished depends on the current economic situation, and my estimate was an average over time.
" it will take about 10 years (at this level of starts) to work off the excess inventory"
That might be about right. In the previous UK slump, prices peaked in summer of 1988....and then fell until around 1992? By 1997 my house was still 10% under the peak value.
This past decade has seen a tremendous shift from employed help to contracted help. Could this trend be underlying the mysterious jobs data? As everyone has noted, contract help is considered "employed" even if only working on a limited basis.
On another front... I get the distinct feeling that Wall Street is in a "grow or die" mode. Like housing, the minute prices stopped increasing the party was over, because demand & financing were both predicated on continued growth.
tj,
That is true about Wall Street. It is always in a grow or die mode because - excepting dividends - you only make money in stocks from growth. When it continues to grow in the face of evidence that corporate profits are at a maximum, it is setting itself for a fall.
I'm hearing anecdotes about builders completing houses ahead of schedule. This puts move-up buyers in a bind because they have to sell quicker than they had expected. Just a few anecdotes, not any hard stats on the phenomenon. But the anecdotes seem believable, for a couple of reasons. First, builders have fewer houses to complete, and they're not laying off many people, so they can finish construction faster. Second, with prices falling, it's better to complete construction now and not later.
It seems odd that today's statistical release tells us that the time between start and completion has increased recently. That doesn't jibe with these anecdotes.
Holden,
This is nothing but an anecdote, so don't put too much in it, but - I'm doing inspection work now on a medium size townhome project near Minneapolis. The General Contractor got all his 'A' list subs on this job (I don't know where all the other guys went and neither does the government, apparently). The work is 2 months ahead of schedule and the quality is the best I've seen from this GC.
Coincidence, maybe.
That is true about Wall Street. It is always in a grow or die mode...
Wally, yes and no. Normal markets can move sideways for extended periods. However, I feel that now that is not an option, given the ponzi forces at work.
about starts dropping below 1 mil..should n't a significant increase in population bump that up a bit..
however, 68% homeownership may be an issue here.
CR,
1.1 mil starts, just eyballing the chart it seems that in every housing bust we break below the 1 million level. Given that the up cycle was longer and more pronounced than the others, the downside of this one should at least reach those "normal" lows. Yeah i know population has grown over time, but still. Put me down for a bottom at 950K starts.
Wally wrote: "The link, in my experience, is very close - days or a week or so. It would also be rare to 'drop' a permit and not start a project."
When it really busts, sometimes those starts don't happen. There's at least one county in FL that just passed or is passing a change to allow builders to reinstate an expired permit for a small fee instead of having to reapply and pay the whole thing. They want to encourage building.
One reason that permits expire is that you can draw on construction loans when you get them!!!! Sometimes there's a token start, sometimes not even that.
--
CR: This is based on the number of new households being formed
OK, now I know the fatal flaw in CRs logic. Who says that a new one household = demand for one housing unit? Also, depending on the economy and cost oof housing the ratio Housing Units Occupied to Number of Households can change significantly. My method of looking at increase in Occupied Housing Units as well as Vacant Units, year Round, is far superior and reflects the actual demand for Housing Units. How about multiple Hispanic households (fastest growing) sharing one Housing Unit?
Holden, interesting anecdote. The numbers do suggest the opposite (it is taking longer from start to completion). I'll have to puzzle over that one.
The builder in my neighborhood has several 90% houses. No floor covering, painting or appliances. Can be finished off in a month when a buyer sho4s up. After almost no sales for 8 months, 4 in the last month. $140-$180K range near Omaha.
Jas,
The government says that in most cases, a new household equals demand for one housing unit. There's an exception for mother-in-law houses, basically.
The Census definition:
A household consists of all the people who occupy a housing unit. A house, an apartment or other group of rooms, or a single room, is regarded as a housing unit when it is occupied or intended for occupancy as separate living quarters; that is, when the occupants do not live and eat with any other persons in the structure and there is direct access from the outside or through a common hall.
A household includes the related family members and all the unrelated people, if any, such as lodgers, foster children, wards, or employees who share the housing unit. A person living alone in a housing unit, or a group of unrelated people sharing a housing unit such as partners or roomers, is also counted as a household. The count of households excludes group quarters. There are two major categories of households, "family" and "nonfamily".
"Why residential construction employment hasn't fallen further is a puzzle."
Undocumented workers, plain and simple. We aren't seeing the whole picture.
--
Hello CR,
Now that all these data are below your estimate for the demand of 1.7M new units the number of Vacant Units should decline, correct?
Also, at these lower rates of activity how long will it take to work off the excess units?
Jas
Starts are going to kill the builders. When these are completed in 6mo they will selling into an epic resale glut coupled with a record REO inventory at a time when buyers have vanished.
If we get any further immigration crackdown (there are still immigrants that come with $$$$$$), demand will contract even further. I expect some HB BK filings late this year. Debt service should kill the marginal HBs as credit ratings agencies lower scores...
Am I correct in assuming that permits are a fairly good forward leading predictor of starts? If so, starts probably have quite a ways to fall.
IMO, the problem with ascribing the strength in construction employment to undocumented workers (who are let go first) is that we need an explanation for why this group of workers would be counted on the way up, when they were hired, but not on the way down, when they are laid off.
CR,
Is it possible to superimpose recessions on the Starts/Completions graph?
TIA,
Jas
Jas beat me to it..
Also 2 reasons on employment:
1) illegals or
2) no more in house crews for builders, now they bidd all the sub jobs out to get the lowest PPSF; framers,drywall, etc
I have a mgmt friend at Ryan does this every thursday...calling listed subs
and the crews that dont get it this week get it next maybe..
and since they are independent they know the hassle of filing UE is fruitless
Could the birth-death model be masking construction job loses?
It looks like Jan and July Birth death model adjustments are mostly negative. Can we expect a bigger downward adjustment this July?
Historical Net Birth/Death Adjustments
http://www.paperdinero.com/images/sfpermits0407large.gif
http://www.paperdinero.com/images/sfstarts0407large.gif
excerpt freom PD:
To illustrate the extent to which permits and starts have declined, I have created the following charts (click for larger versions) that show the percentage changes of the current values compared to the peak years of 2004 and 2005.
Notice that on each chart the line is essentially combining the year-over-year changes seen in 2005 and 2006 and shows virtually every measure trending down precipitously.
Although year-over-year declines to permits, for example, have not accelerated measurably from September 2006, the fact that they continue to decline roughly 30% should provide a solid indication that they are by no means stabilizing.
many unskilled, subcontractors don't pay taxes, both legals and illegals. The employment figures are under reported during the boom and over reported during the bust.
Unless the figure are just wrong it seems self evident that many builders are not overly intimidated by the current environment. And why should they be? They made massive profits on the way up and can continue to make good profits on the way down. If americans prefer new to old it will be old that is trashed pricewise relative to the priced to sell at a profit new. Until people actually begin telling me that builders are not actually building i am going to believe that employment has not fallen because well....you get it!
--
Two phrases, bottomed and stabilizing are being used buy bubble-meisters. We only know 6-12 months after the fact if some trend has reversed. Until then, the fundamentals of Vacant Units (piling up) dictates that starts and permits have a long way to go. And I mean into 6 digits.
Jas
--
I seriously doubt that most people prefer new to the old. 3-5 year old house is ideal because everything has been fixed and you got lot of planting taken care of, etc. New home owners put in a lot of free labor in making homes more livable.
Jas
Hre is a little more color (ok its pretty dry so maybe the color is grey) on this mornings numbers, cross posted from the Zacks.com blog
This mornings release of the housing starts and permits data was a bit of a mixed bag. Starts came in at 1.528 million (SAAR), up 2.5% and much better than expected. Most of the strength was in the North east where starts jumped 31.3%. The west also put in a good showing with a 7.8% increase. The all important south region was virtually unchanged, down just 0.1% and in the Midwest starts fell 14.2%. Last month the Midwest was anomalously strong so this months decline looks like payback time. On a year over year basis things still look quite weak with nationwide starts down 16.1%, and every region down: Northeast off 4.4%, the West down 6.3%, the South down 13.0% and the Midwest down a severe 42.6%. On a year to date basis, Nation wide starts are down 26.2%. Year to date the Northeast is holding up best down just 16.8% while the Midwest has been hit the worst, down 40.2%. So are the better than expected start figures a sign that the housing market is beginning to bottom out?
I dont think so, and one only has to look at the building permits data to see why. Nation wide permits were down 8.9% to 1.429 million (SAAR), a much worse than expected showing and are down 28.1% year over year. Worst hit this month in permits was the West, down 14.3% while the North East held up best, down 5.4%. The South was down 7.0% and the Midwest was down 8.2%. On a year over year basis, permits are down 28.1%. The South and the West are tied for the worst performance, each down 30.9% while the North East and the Midwest are down 15.1% and 21.5%, respectively.
Much will depend on the new home sales data due out on 5/24. If it is a weak report, then the increase in starts will be very bad news. There is a huge and growing inventory of unsold houses in the country. That inventory needs to be seriously whittled down before the housing market can really stabilize. I dont think the stabilization will come any time soon. This housing boom was stronger and more prolonged than most. In every housing downturn since LBJ was in office, housing starts have dropped below 1.0 million. We peaked in Jan.2006 at just over 2.2 million. I expect that we will again see starts below 1.0 million, so we are probably in about the 4th inning of this housing downturn, not even to the 7th inning stretch.
As a side note, I will be appearing on CNBC today (5/16) at 12 noon and 4pm, Eastern time (11AM and 3pm Chicago time) discussing the housing market.
This report involved housing data, mainly building permits and housing starts. YOY, building permits and housing starts were -28% and -16%, respectively. MOM, building permits and housing starts were -8.9% and +2.5%, respectively. So we see, 3 of 4 data points were down sharply but one was up only slightly. But guess which one made the headlines. You guessed it Housing Starts Rebound. Going with this charade for a little longer, considering there is a glut of unsold homes on the market and this Spring selling season has been and will continue to be a dud, a reasonable person would think that an increase in housing starts would only worsen the housing sector. What a sham the entire economy has become. Buy physical gold and silver to offset the coming carnage.
Fireworks
Casey Serin: The world's most hated blogger? - CNET News
Most hated (and lazy) blogger
How soon before we see a fall off in real estate brokers??? These people must be dying on the vine earning zero commission.
"I seriously doubt that most people prefer new to the old"
In a stressed market sought after property quickly sells and the rest is what nobody wants. New then competes with the "stuff that nobody wants"
Old houses need constant replacement of old parts.....a good new house is good for a few years apart from the odd crack and may be be gauranteed.
Americans want ensuite for every bedroom i am told.....they prefer new in Cincinatti anyway!
Unless the figure are just wrong it seems self evident that many builders are not overly intimidated by the current environment.
We must be looking at different data. The data I'm looking shows an 8.9% decline in building permits for the month. The steepest decline in 17 years.
Where permits go, starts will be forced to follow.
There should be a very solid correlation between permits and starts with an average lag of only two or three weeks by the starts. You don't pull a permit until you are ready to build because you have to pay for the permit.
The BLS is showing net construction jobs added so far this year (including a large positve plug in the April birth/death add), while the ADP survey is showing a net loss, so perhaps the BLS survey will post a large catch-up in construction job losses over the next couple of months? Also note that these surveys don't count under-employment: ie. a construction worker who was working 60 hours a week in 2005 is still counted as employed if they're working 20 hours a week now. What percentage of the construction industry are self-employed contractors? They won't be removed from payrolls until a few months after they go bankrupt.
Ignore the stats. As CNBC just noted while showing clips of Dirk, the margin for error on that +2.5% number is 9%! On the northeast increase of 31% starts, the margin is 41%!!! These are meaningless.
Nothing, absolutely nothing is trending in the opposite direction from what CR, and common sense told you for the last year or more.
When Greenspan said we were at bottom, he was wrong.
When the homebuilders said that things were bottoming and looking up, they were wrong (and the return to 30 on the NHAB sentiment proves that).
Everyone, absolutely everyone who has predicted anything other than a housing bust with steady (aleit) slow worsening has been dead wrong.
The worst is still yet to come as again CR and common sense has been telling you.
The ONLY thing going the other direction is the DOW. (with Nas and S&P being reluctantly dragged along kicking and screaming).
Take a step back and look at the big picture. The trunk aint a snake, the tail aint a worm and the leg aint a tree....The damn thing is an elephant, the elephant in the room, and it's about to squish these blind mice.
For builders today, at least in my So Cal city, they are FORCED to keep building. They have 20% built masterplanned neighborhoods where the've alrady paid for the streets, sewers, and huge association clubhouses with pools. The builders are paying the HOA's for the 80% yet to be completed. They have built schools with the expected Mello Roos. They are absolutely forced to keep building and will do so until they hit BK.
This will mean delaying the inevitable and make for a much more sudden and interesting moment when it all blows up.
Thanks to Tanata, we now understand why Mortgage applications numbers don't truly reflect actual applications. One of the reasons, many smaller lenders have closed shop.
Since many small home builders may have given up, can start numbers be misleading as well?
I agree with AC - by definition, permits provide an upper limit on starts. But the number I'm really watching right now is completions. Permits may be dropped (and won't be reported if so), but completions are reported and therefore reliable after a few months of revisions.
Still, I don't understand how anyone can believe that the housing slowdown is going to reverse this year when the permit numbers keep going lower.
And almost all of the MoM starts increase was produced by the downward revision for March. This is becoming a pattern.
Jas, using my numbers, it will take about 10 years (at this level of starts) to work off the excess inventory. That is why I think starts will fall much further at some point - my estimate was the bottom for Starts would be around 1.1 million units SAAR.
It does look like my demand number is about right.
Bill, Permits really don't tell us much. If you plot both permits and starts, they pretty much move together. As far as employment, this is a real puzzle (and it's not just illegals). I've been contacted by two Fed economists lately that are trying to figure it out. There are many parts to the puzzle, but one of the main concerns is the BLS is missing the turning point - so employment may be weaker than reported.
Best Wishes.
It does look like my demand number is about right.
Is this the 1.7m number?
Also, does this number make the assumption that all these people are viable candidates to receive financing?
Whatever the intrinsic demand for housing may be, I believe that at today's prices the percentage of these would-be buyers actually qualified to buy homes is greatly reduced.
In other words, the more of this intrinsic demand that is satisfied, the more financial mayhem ensues in the future.
--
Thanks, CR.
Only a lag of few weeks between permits and starts? I thought that it would be 2-6 months. BTW, the Permits data doesn't count mom-and-pop builders. The same may be true of Starts. It is entirely probable that the supply side is under reported. Any comments, CR?
IMO, the Total Units surveys take care of all the new build and the deaths of old ones (demolished).
Jas
Jas,
Typically a permit is issued only after the plans are reviewed by the local building inspections department and the builder pays for the permit when he picks it up (he needs it in hand to begin construction). The link, in my experience, is very close - days or a week or so. It would also be rare to 'drop' a permit and not start a project.
Permits are different than zoning approvals, etc., which could lead by months.
ac, many months ago I calculated that "normal" demand for new housing units would be around 1.7 million units per year. This is based on the number of new households being formed, and the number of units destroyed each year.
There were several important caveats: first, there were too many units built in recent years - there are something like 1.4 million excess units (some estimates as high as 2+ million excess units) that need to be worked off.
Second, demand depands on price. If the price was low enough, many more people would own two homes! So this is just a rough estimate. Also the number of units demolished depends on the current economic situation, and my estimate was an average over time.
Best Wishes.
wally, exactly. That is why I mostly ignore permits - give me shovels in the ground!
Best Wishes.
" it will take about 10 years (at this level of starts) to work off the excess inventory"
That might be about right. In the previous UK slump, prices peaked in summer of 1988....and then fell until around 1992? By 1997 my house was still 10% under the peak value.
This past decade has seen a tremendous shift from employed help to contracted help. Could this trend be underlying the mysterious jobs data? As everyone has noted, contract help is considered "employed" even if only working on a limited basis.
On another front... I get the distinct feeling that Wall Street is in a "grow or die" mode. Like housing, the minute prices stopped increasing the party was over, because demand & financing were both predicated on continued growth.
tj,
That is true about Wall Street. It is always in a grow or die mode because - excepting dividends - you only make money in stocks from growth. When it continues to grow in the face of evidence that corporate profits are at a maximum, it is setting itself for a fall.
I'm hearing anecdotes about builders completing houses ahead of schedule. This puts move-up buyers in a bind because they have to sell quicker than they had expected. Just a few anecdotes, not any hard stats on the phenomenon. But the anecdotes seem believable, for a couple of reasons. First, builders have fewer houses to complete, and they're not laying off many people, so they can finish construction faster. Second, with prices falling, it's better to complete construction now and not later.
It seems odd that today's statistical release tells us that the time between start and completion has increased recently. That doesn't jibe with these anecdotes.
Any thoughts?
Holden,
This is nothing but an anecdote, so don't put too much in it, but - I'm doing inspection work now on a medium size townhome project near Minneapolis. The General Contractor got all his 'A' list subs on this job (I don't know where all the other guys went and neither does the government, apparently). The work is 2 months ahead of schedule and the quality is the best I've seen from this GC.
Coincidence, maybe.
That is true about Wall Street. It is always in a grow or die mode...
Wally, yes and no. Normal markets can move sideways for extended periods. However, I feel that now that is not an option, given the ponzi forces at work.
CR/Dirk:
about starts dropping below 1 mil..should n't a significant increase in population bump that up a bit..
however, 68% homeownership may be an issue here.
The ONLY thing going the other direction is the DOW. (with Nas and S&P being reluctantly dragged along kicking and screaming).
ha ha ha
CR,
1.1 mil starts, just eyballing the chart it seems that in every housing bust we break below the 1 million level. Given that the up cycle was longer and more pronounced than the others, the downside of this one should at least reach those "normal" lows. Yeah i know population has grown over time, but still. Put me down for a bottom at 950K starts.
Holden, interesting anecdote. The numbers do suggest the opposite (it is taking longer from start to completion). I'll have to puzzle over that one.
Best Wishes.
Wally wrote: "The link, in my experience, is very close - days or a week or so. It would also be rare to 'drop' a permit and not start a project."
When it really busts, sometimes those starts don't happen. There's at least one county in FL that just passed or is passing a change to allow builders to reinstate an expired permit for a small fee instead of having to reapply and pay the whole thing. They want to encourage building.
One reason that permits expire is that you can draw on construction loans when you get them!!!! Sometimes there's a token start, sometimes not even that.
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CR: This is based on the number of new households being formed
OK, now I know the fatal flaw in CRs logic. Who says that a new one household = demand for one housing unit? Also, depending on the economy and cost oof housing the ratio Housing Units Occupied to Number of Households can change significantly. My method of looking at increase in Occupied Housing Units as well as Vacant Units, year Round, is far superior and reflects the actual demand for Housing Units. How about multiple Hispanic households (fastest growing) sharing one Housing Unit?
Best regards,
Jas
Holden, interesting anecdote. The numbers do suggest the opposite (it is taking longer from start to completion). I'll have to puzzle over that one.
The builder in my neighborhood has several 90% houses. No floor covering, painting or appliances. Can be finished off in a month when a buyer sho4s up. After almost no sales for 8 months, 4 in the last month. $140-$180K range near Omaha.
Jas,
The government says that in most cases, a new household equals demand for one housing unit. There's an exception for mother-in-law houses, basically.
The Census definition:
A household consists of all the people who occupy a housing unit. A house, an apartment or other group of rooms, or a single room, is regarded as a housing unit when it is occupied or intended for occupancy as separate living quarters; that is, when the occupants do not live and eat with any other persons in the structure and there is direct access from the outside or through a common hall.
A household includes the related family members and all the unrelated people, if any, such as lodgers, foster children, wards, or employees who share the housing unit. A person living alone in a housing unit, or a group of unrelated people sharing a housing unit such as partners or roomers, is also counted as a household. The count of households excludes group quarters. There are two major categories of households, "family" and "nonfamily".
I am very interested in the housing starts vs completion graph. Would it be possible to get an Excel copy of the data sent to bnossuli@hotmail.com?
Thank you VERY much.