Builders in the U.S. started work last month on the fewest number of new homes since August 1997 as a glut of unsold houses and the onset of colder weather discouraged new projects.
Housing starts slumped 14.3 percent to an annual pace of 1.408 million, less than forecast and down from December's 1.643 million rate, the Commerce Department said today in Washington. Building permits declined 2.8 percent to a 1.568 million pace.
Treasury yields fell after the figures showed residential construction will remain a drag on the economy until the inventory of unsold homes declines. Federal Reserve Chairman Ben S. Bernanke told lawmakers this week that the process may extend through much of the year.
``Housing inventories are still beyond bloated, and starts aren't going to recover in any meaningful way until those inventories come down,'' Chris Low, chief economist at FTN Financial, said before the report. ``I would be cautious about calling an end to the housing slump just yet.''
First -- this news while shocking, shouldn't be. Housing inventories have indeed been bloated for some time. Last month's increase took me by surprise, largely because of the massive amount of overbuilding. It looks like that's coming to an end.
Going forward, this has some really important implications. The most important is construction employment. The blog Calculated Risk has been all over this and done a great job. The link is at the right on the blog roll. I would add two more job areas: professional services and financial services. Here's a chart of each of the preceding areas:
Construction:
Professional Services:
Financial Services:
We've already started to see cracks in the sub-prime mortgage market. With fewer houses being built, there is less of a need for a sales and financing force. However, I wouldn't expect a big drop for at least a 3-6 months. This means we could start to get a very painful slow bleed in employment with construction lay-offs beginning, followed by a decreasing sales and financing force.
2 comments:
3 to 6 months lines up with what the yield curves say, with the clearest inverted yield in the 6 month to 5 year range.
Merrill: Subprime EPDs Accelerating
http://www.originationnews.com/plus/#2
Early payment defaults on subprime residential loans are accelerating, and creditors are being highly critical of whom they do business with, a top Merrill Lynch analyst told investors Feb. 14. Merrill's Kenneth Bruce also said lenders are under intense pressure to tighten their underwriting guidelines, which could lead to a credit crunch for subprime borrowers. During the same conference call, Merrill researcher Kamal Abdullah raised the specter of a subprime "contagion" that could lead to the inability of the "bottom" 25% of all subprime borrowers to get loans. MortgageWire broke the news Feb. 9 that Merrill is making margin calls on nondepository subprime firms that it has been financing. The investment banking firm, like other Street firms, has been forcing lenders to buy back bad loans. Several undercapitalized wholesalers that cannot meet Merrill's demands -- and the demands of other secondary-market loan buyers -- have been forced into bankruptcy, including OwnIt Mortgage and ResMae of California and Mortgage Lenders Network of Connecticut. (For more details, see the Feb. 19 issue of National Mortgage News.)
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