Wednesday, February 18, 2009

Housing Starts Plummet

Housing Starts fell to 464,000 in January, the lowest level since the Census Bureau began tracking the number in 1959.  Single-family starts were at 347,000 and single-family permits were 335,000.  This report was significantly worse than the decline to 529,000 starts that economists were expecting.  As I've stated many time before, I know that this is an important indicator of economic growth, but given the current over-supply in housing, I don't see how we can achieve equilibrium in the market again unless unnecessary building is curtailed.  This grim reality seems to finally be sinking in to the construction sector.

In related housing news, The New York Times has a preview of the foreclosure prevention plan aimed at stemming the rising tide of foreclosures that President Obama is set to unveil today in Phoenix, a city that was the poster child of the crazy condo-flipping of yesteryear that has now turned to bust.  The proposed $50 billion plan is meant to help those homeowners who have fallen behind on their mortgage payments and are in imminent danger of losing their homes to foreclosure.  So if you are current on your mortgage, but upside-down, you are out of luck.  According to the article, the government plans to "entice banks to reduce the monthly payments of people who otherwise couldn't afford to stay in their houses," essentially splitting the losses with the banks.  Certainly this is bound to annoy anyone who purchased a home they could actually afford and have been current on their payments.  Arguably this is a bailout for the irresponsible borrower and lender, but we are way past moral hazard here.  What the administration is trying to do is reduce the number of houses that are sitting empty and putting a drag on the value of an entire neighborhoods' home value.  A bunch of vacant housing is poisonous to the economy and our administration is willing to take extreme measures to prevent a bad situation from getting much worse.  After all, builders can't spur the economy by building new homes with the current supply glut.  The question remains whether this plan in particular, after so many attempted mortgage modification plans have failed in the past year and half, will be the one that finally does the trick.  I'm not holding my breath. 


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