New residential housing starts fall 22.5% in February, biggest decline in 27 years

Could the news in residential housing markets possibly get worse?  Apparently, the answer to that is yes — a lot worse.  The Department of Housing and Urban Development reported today that residential housing starts, including multi-family dwellings, dropped an astonishing 22.5% in February from the previous month.  New starts on single-family housing dropped 11.8%:

Privately-owned housing starts in February were at a seasonally adjusted annual rate of 479,000. This is 22.5 percent (±9.8%) below the revised January estimate of 618,000 and is 20.8 percent (±9.0%) below the February 2010 rate of 605,000.

Single-family housing starts in February were at a rate of 375,000; this is 11.8 percent (±10.0%) below the revised January figure of 425,000. The February rate for units in buildings with five units or more was 96,000.

Don’t expect this number to rise in the next few months, either.  Permit issuance dropped as well:

Privately-owned housing units authorized by building permits in February were at a seasonally adjusted annual rate of 517,000. This is 8.2 percent (±3.3%) below the revised January rate of 563,000 and is 20.5 percent (±3.5%) below the February 2010 estimate of 650,000.

Single-family authorizations in February were at a rate of 382,000; this is 9.3 percent (±1.2%) below the revised January figure of 421,000. Authorizations of units in buildings with five units or more were at a rate of 121,000 in February.

Interestingly, the biggest percentage drop in starts month-on-month came in structures with 5 or more units (-47%), but that’s because of an unusually large number having been started in January.  Year-on-year, the 5+ category grew 54.8%, a sign that rentals rather than ownership has become a growth industry.  In contrast, the number of starts for single-family homes dropped -20.8% year-on-year, showing the crash in family-owned house construction continues.

Even the good news carries more dark cloud than silver lining.  Housing completions rose in February by 13.9% over January, but still -13.0% from February 2011.  The completions in 5+ unit structures rose 28.9%.  However, that means that fewer projects are left to complete, which will squeeze construction and secondary markets even further.  The drop in permitting means that there will be fewer new projects taking the place of these completions.

This is the biggest drop in residential starts in 27 years, according to Reuters, and correctly diagnoses the problem:

Housing starts posted their biggest decline in 27 years in February while building permits dropped to their lowest level on record, suggesting the beleaguered real estate sector has yet to rebound from its deepest slump in modern history. …

One key impediment to the sector’s recovery is a vast backlog of unsold inventory, while a shaky job market has also made consumers reluctant to embark on any major new financial commitments. Making matters worse, a glut of foreclosures, stalled in recent months by revelations of improper loan documentation, is depressing the market.

The effort to postpone foreclosures has, predictably, made the situation worse — although the convoluted accounting for loan ownership didn’t help either.  Instead of attempting to forestall the inevitable, we should have been working to resolve status on uncertain assets two years ago.  It would have been painful, but arguably less so than dragging out the uncertainty and depressing construction and secondary markets for this long.

Not only that, but the US didn’t take advantage of the delay to solve the real problem underpinning the real-estate meltdown: unemployment.   If we wanted to spend tens of billions of dollars stalling foreclosures, then we should have simultaneously implemented pro-growth reductions in regulation and taxation to jump-start job creation and get people back into position to pay their mortgages — which would have been the only way to avoid the deluge of foreclosures that are coming or already are arriving.  Instead, we expanded regulation directly on employment (ObamaCare) and investment (Wall Street regulation) and have barely touched the millions of people who lost their jobs in the Great Recession.

The recovery will be a mirage until we fix those problems rather than punting in order to enact hobby-horse government expansions.

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