Earlier this week, a disappointing report on housing starts sent stocks plunging with the Dow Jones losing 50 points on the day.
The Commerce Department reported that applications for new building permits fell by 1.2 percent to an annual rate of 573,000 units. Housing starts had only a modest increase of 05 percent to an annual 590,000 new homes and apartments.
What, exactly, is a housing start?
The term, housing start, refers to the number of housing units, typically privately owned new homes, on which construction has started in a given period. That is to say that the builder has begun excavation on the foundation of the home. In response to some natural disasters, the definition was revised to include a housing unit that is being built on an existing foundation following destruction of the original home.
Housing starts are divided into single-family and multi-family numbers. A 100 unit apartment building that has just begun, for example, would be counted as 100 starts.
To get an annual rate, the starts for the month are multiplied by 12 with the figure being adjusted seasonally given the fact that more home construction takes place in the summer rather than the winter.
Why does this number have such an impact on the stock market?
Since the housing market is one of the cornerstones of the economy, negative numbers are going to produce jitters among the public and, in turn, affect the stock market.
Market experts feel that the housing starts number is usually a good indicator of where the economy is moving. Sustained declines in housing starts can slow the economy and could push it into a recession. By the same token, increases in housing activity can trigger economic growth.
For the past few months, home builder sentiment has been on the upswing. But, with recent weak reports, along with the fact that the home buyer tax credit is soon set to expire, builders are getting nervous.
The question now is - will the government intervene to extend the tax credit to help these sluggish numbers or will they, perhaps, put a completely different kind of program in its place?
Do you have questions about buying a home in the Metrowest area? I would love to talk with you. Please feel free to call me at 508-881-6230 - any time or E-mail me.
Copyright 2009 - Claudette Millette, Broker, Owner, TheBuyersCounsel - 800-392-1446 - E-mail
Ashland, Holliston, Hopkinton, Natick, Newton, Northborough, Framingham, Shrewsbury, Sherborn, Southborough, Sudbury, Wayland, Westborough
Copyright 2009 - Claudette Millette, Broker, Owner, The Buyers' Counsel - (508) 881-6230
Your Massachusetts Buyer Broker Since 1992
MLS Property Search With No Registration Required
Ashland, Holliston, Hopkinton, Natick, Newton, Northborough, Framingham, Shrewsbury, Sherborn, Southborough, Sudbury, Wayland, Westborough
When the cost of a home is again determined by what it costs to build a home, the economy and real estate market will not be able to recover.
I personally think the government will continue to hand out thousands...maybe with an extension of the current 8000 or maybe a whole new "program". It aids in getting buyers to decide with the uncertainty.
Claudette..Excellent information here..As for where it is going..I guess we will have to wait and see..:0)
HELPFULHANNAH
Utah has a $4000 New Home Grant to help stimulate Housing Starts...It seems to be doing a pretty good job!
-Phil Graves-
utahbuyeragent.com
Joseph:
I am not sure that I follow you. Could you please clarify that?
Sonja:
You may be right, but perhaps the government will come up with something other than "handing out money." I don't know. I just think that the time is ripe for coming up with something (as Monty Python would say) "Completely different."
Hannah:
Thanks so much. We will have to stay tuned for the next installment...
Phil:
That is very interesting. I will look that up.
Phil:
I just looked into that program. Here is a link of an article that goes over the specifics for anyone in Utah:
http://www.realestatewebmasters.com/blogs/lisaudy/8384/show/
Thanks, Phil.
Hi Claudette,
One reason why I don't over emphasise the housing starts and even hosing permits in explaining ur current market conditions is because of the culture change ( driven by the current markets) away from single family to apartment living. I think the statistics are often misleading to consumers and really doesn't clearly identify the relationship of investment grade housing to the changes in residential resales for housing demand. An excellent post for the savvy consumer. It took many decades to get private home ownership up over 65%. It has taken only 2 years to bring that level down to levels comparable to a decade ago.
Claudette, not that it would make a great deal of difference, but I wonder why homes lost and rebuilt after a natural disaster were included in the "starts"?
I'm not sure that the Gov. should continue to "hand out money" either (our money) but I think it has helped to get things moving. I don't think I would be against continuation for another year...hope they can get a handle on the issues of fraud...I saw on CNN this morning that the expected cases of fraud was way more than originally thought.
Hi Claudette... I don't profess to have all the answers, but I actually hope that the tax credit is replaced with some different type of program. I think we have primed the pump for quite a few months with the $8K tax credit, it's time to allow the pump to flow on it's own and if it can't, perhaps a different incentive might be more effective in creating a sustainable flow of home sales.
William:
It is a shame that home ownership has gone down but that it understandable with current economic situation and foreclosure numbers. I think the best we can hope for right now is that the direction starts to turn around over the next few years.
Nick:
I am not sure about the rebuilt homes after a natural disaster but perhaps it is because they are a total rebuild of everything but the foundation.
I think six months to a year is what they are hoping for right now as far as an extension goes. That is interesting about the fraud numbers being higher. I guess it's not really a surprise but it is disturbing, none-the-less.
Hi, Steve:
I think the politicians are afraid, and perhaps with good reason, to just let the credit expire. There is a great fear that the housing market will just fall into a black hole without any assistance. I agree that it may be time for a different solution to the problem. I am not sure exactly what but perhaps another type of incentive that applies to all home buyers, not only first-timers. Of course, any type of incentive will still be costly. I am just not sure that they are ready to completely abandon all government help since the housing market is still struggling.