The nation's home builders are experiencing their worst nightmare.
This week the Commerce Department reported that construction of new homes dropped 16.8 percent last month to a seasonally adjusted annual rate of 466,000. Well below the 530,000 units economist had expected. This was the slowest pace on records dating back a half a century.
Otherwise stated, housing starts are now 56.2% below the annual pace from the January 2008 market.
This is unfortunate news for home builders; however, in an environment with 11 months plus of inventory to sell, it is probably good for the housing market. With the glut of foreclosures and other unsold homes, we need to clear out what is already here before building more houses that will be left empty and idle.
Here, in the Northeast, construction has dropped 42.9 percent to a record low of 36,000 units at an annual rate.
Applications for building permits have also dropped to a record low, falling 4.8% to a rate of 521,000 units which was below economists' expectations.
These numbers were released just as the current administration is polishing the details on its foreclosure rescue plan in hopes to provide comfort to an ailing housing market. As we all know the current housing problems have pushed this country into a recession and have ignited the current financial crisis.
Obama's $75 billion "Homeowner Affordability and Stability Plan" promises to provide mortgage restructuring or refinancing assistance to 9 million families in order to keep them from foreclosure. So far, the plan has garnered a cloudy reception from Wall Street this week as the stock market has continued its downward slide.
The ultimate goal is to relieve the overly burdened housing inventory and to sell the existing surplus. Albeit painful for home builders, the slow-down in housing starts could help to facilitate this effort.
The plan that was unveiled this week to help struggling homeowners has three key components:
- Refinancing for responsible homeowners suffering from falling home prices
- A comprehensive $75 billion homeowner stability initiative - a multi-part strategy to prevent millions of foreclosures
- Support low mortage rates by strengthening confidence in Fannie Mae and Freddie Mac
If successful, this plan could rescue some of the people who are facing the loss of their homes and reduce the number of foreclosure properties flowing into the market.
Copyright 2009 - Claudette Millette, President, TheBuyersCounsel - 800-392-1446, E-mail
Ashland, Holliston, Hopkinton, Natick, Newton, Northborough, Framingham, Sherborn, Southborough, Sudbury, Wayland, Westborough
Homeowner Affordability and Stability Plan offers nothing new to jump start home sales or bolster housing values.
Unfortunately here in Metrowest Mass this downturn is going to put quite a few good contractors out of business and into other lines of work.
Bill:
You are right and my heart goes out to those builders, their families and everyone else who is being hurt by these current economic hardships.
Claudette
I had no idea until I got into the Real Estate business about 6 years ago how much of the economy is spurred by construction! Maybe there are too many contractors for the market right now, just like a few other businesses. If we don't build new, maybe the remodel will keep them afloat! I know our model home business in newer subdivisions has dropped off, but it's not dead!
Hi Claudette. Thanks for the informative post.
Although new construction is way off, it seems from the streets that I've been drivng along that the remodeling and addition business is doing well. I guess many of those new construction workers now have some availabe time to return those calls for the small remodeling jobs.
Jim:
You are right about that. I think it is due to the fact that people are choosing to stay in their current homes right now rather than buyng new ones. So, they are remodeling.