Housing starts slip 4% in December; building permits rise
For 2009, new construction falls to post-World War II low of 554,000 homes
By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) -- Capping the worst year for housing since the end of World War II, U.S. housing starts fell 4% to a seasonally adjusted annual rate of 557,000 in December, the Commerce Department estimated Wednesday.
For all of 2009, an estimated 554,000 homes were started, down 39% from 2008's total and the lowest on record. Starts of single-family homes dropped 29% to a record-low 444,000 in 2009.
Housing starts of single-family homes, condominiums and apartments have been essentially flat over the past year, dipping one month only to rise the next. Compared with December 2008, starts are up 0.2%, the first year-over-year gain since early in 2006.
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Painted in the starkest terms, starts are down about 75% from the peak in 2006.
"This extremely depressed level of new construction should allow inventories of unsold new homes to enter the key spring selling season at reasonably balanced levels," wrote economists for Morgan Stanley.
The December estimate of 557,000 was better than the 540,000-unit rate expected in the median forecast of economists surveyed by MarketWatch. Read our complete economic calendar and consensus forecast.
November's starts pace was revised higher, to 580,000 from 574,000 previously reported. Read the full report on the government's Web site.
The home-construction industry has been busy slashing production of new homes to work off a massive inventory of unsold properties. As of November, the number of new homes on the market had fallen about 60% to just 235,000 -- the fewest since 1971.
For their part, builders remain very pessimistic about a recovery, despite a generous tax subsidy for buyers.
In January, the home builders' sentiment index dropped back to a reading of 15 from 16. Builders face tough competition from foreclosures of existing homes, and prospective buyers remain cautious about the job market. See our full story on the home builders' index.
The adjustment in home building isn't over yet: The number of homes under construction fell 4% in December to a seasonally adjusted annual rate of 511,000, a record low, the data showed.
For all of 2009, the number of homes completed fell 29% to 796,000, also a record low.
Some reasons for optimism
Details of the December report showed a stronger rebound in the housing market, however. The number of building permits rose 10.9% to a seasonally adjusted annual rate of 653,000, far above the level of starts and the highest in 14 months.
In December, building permits for single-family homes rose 8.3% to a seasonally adjusted annual rate of 508,000, the highest in 15 months. Many economists consider the single-family permits figure to be the most reliable and important number in the release.
Over time, permits and starts are highly correlated.
Permits are less affected by unseasonable weather than starts are. This December was one of the coldest and wettest on record.
"Some of the decline in starts may owe to messy weather conditions in the month which tend to affect permits less," wrote Julia Coronado, an economist for BNP Paribas. However it is still the case that the momentum in building activity as fizzled in recent months."
Starts fell sharply in the Northeast and Midwest, rose slightly in the South, and were essentially flat in the West.
The government cautions that its monthly housing data are volatile and subject to large sampling and other statistical errors. In most months, the government can't be sure whether starts increased or decreased.
In December, for instance, the standard error for starts was plus or minus 9.3%. Large revisions are common.
The standard error for monthly building permits data is much lower at plus or minus 2.4%.
It can take four months for a new trend in housing starts to emerge from the data. In the past four months, housing starts have averaged 562,000 annualized, down from 568,000 in the four-month period that ran through November.
In a separate report Wednesday, the Labor Department said producer prices rose 0.2% in December, while core prices -- which exclude food and energy prices -- were flat. Read our full story on the PPI.
Rex Nutting is Washington bureau chief of MarketWatch.