Saturday, August 23, 2008

You Don't Have To Be House Shopping. This Hurts.

Just as your government and media neglect to mention that job increases need to rise by a percentage equal to the increase in population, so they're expecting that you will forget that that has to be added to increase in housing starts. As much as the population increases each year needs to be added to the figure - 2.9% - to appreciate how much of a squeeze that means for those seeking homes. Now remember the law of supply and demand? Supposedly that's how much additional price your new home buyers are going to need to ante up for their homes.

A downturn in new starts doesn't mean that that many fewer are buying houses, but that there is so much downward pressure on prices that builders can't afford to build. Without building homes, the companies doing the building also can't hire contractors like plumbers, airconditioning/heating suppliers, gardeners/landscapers, all the industries associated with building homes. Then you can throw in the furniture, appliance, curtain and carpet manufacturers. On the heap, toss some real estate businesses. You are by now seeing immense loss of income, and to that you can mix in the businesses not selling to the workers in those industries.

Got the picture? A large segment of the total economy is affected, which means that income and profits are significantly down over that large segment. When is that going to change? It's not soon.

Construction of homes and apartments fell in July to the lowest level in more than 17 years, but some economists said the drop could aid the slumping housing sector by helping reduce a glut of unsold properties.

The Commerce Department on Tuesday said builders broke ground on 965,000 housing units on an annualized basis, down from a pace of 1.08 million in June and the weakest showing since March 1991.

The report showed that July construction of single-family homes fell by 2.9 percent from the previous month to a pace of 641,000. That was the lowest since January 1991, when the economy also was in distress.

Construction of apartments and other multifamily dwellings also fell sharply, after a large jump in June due to a change in New York City’s building codes. That change, which went into effect July 1, gave a rare lift to overall housing construction in June.

Economists said the drop could help reduce the glut of unsold homes, a step toward turning around the slumping real estate market. Homebuilders are competing with foreclosed homes selling at steep price discounts.

“Slower starts means less adds to inventory,” said Adam York, an economic analyst at Wachovia Corp. “We have too much supply on the market.”
Housing permits in July fell to a rate of 937,000, a 17.7 percent drop from June, but still above analysts’ expectations of 925,000. Permits are considered a reliable sign of future activity.

“The correction in the housing market has yet to find its bottom,” Richard Fisher, president of the Federal Reserve Bank of Dallas, said in a speech Tuesday.

New home construction last month was down a steep 39.2 percent compared with July 2007, illustrating how much ground the housing market has lost in the past year.

These are dismally large numbers. That kind of shock is happening to any number of families, and it's happening to you, too. I had to pay U.S. Airways for water with my dinner on my flight here, and I had to pay for almost $2 pounds when I got to London. Lucky that the exchange rate is down a bit.

Of course, if your business writer threw all this information into their reporting, the panic would send all his/her readers into shock. Advertisers would complain to the editor that consumers would start saving for the future instead of spending themselves into oblivion, and the business writer would be out on the streets.

Let me repeat. The housing starts in the U.S. are down 39.2% in one year. Now, go shopping.

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Blogger Deb said...

And the really big elephant in the room that everyone is ignoring, is that all those people who lost their homes won't be eligible to buy new ones if the economy picks up because their credit is in tatters.

And those working in the growing service sector will never qualify for a home loan. Sort of like the old days when a person that worked for Sears didn't earn enough to get a Sears credit card.

Methinks this is going to get much worse before it gets any better. And by better I mean today, not a few years ago.

10:34 AM  

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