During February, residential construction declined 23%, according to housing statistics released today [.pdf] from the Census Bureau and Housing Department. This decline resulted with the third-lowest level of housing starts since record keeping began in 1959.
There were 40,000 housing starts in February, or an annual rate of 479,000 (revised to 512,000 in March). April 2009 and January 2009 are the only months with fewer housing starts, when the annual rate were 477,000 and 488,000. Compared to February 2010, housing starts were 21% lower in February 2011. As these bleak facts show, residential developers expect a much lower demand for new homes.
In addition to the record level of housing starts in February, building permits also plummeted to a record level. During February, the amount of issued building permits declined 8%. This decline resulted with the fewest amount of building permits issued in a month since record keeping began. Compared to February 2010, the amount of issued permits were 21% lower in February 2011.
The amount of building permits issued in a month generally indicates the amount of housing starts for the next month. For instance, the amount of issued permits declined over 10% in January, which resulted with the sharp decline of housing starts in February. With the 8% decline in February, residential construction will likely decline again in March.
The declines in building permits and housing starts are rooted in a similar dilemma – not only a greater supply of new homes, but also a lower demand. There were almost three million repossessed homes throughout 2010, which is the greatest annual amount on record that has certainly inflated the supply of homes. In addition to a drastic growth in the supply of homes, the amount of prospective buyers has declined with the heightened unemployment rate. Fewer prospective buyers, as well as a greater amount of homes on the market, has led to a stalemate throughout the housing industry, such as:
- Home prices have declined five consecutive months.
- Home sales have hit record lows throughout the past six months.
- The shadow inventory of homes has surged.
- The 23% decline in residential construction during February, which was the greatest monthly decline since March 1984.
A monthly survey released from the National Home Builders Association similarly shows a stagnant housing forecast. The NHBA has conducted a monthly survey for the past twenty years of home builders to determine whether builders view the housing market as good or poor for the next six months. A rate above fifty signals good conditions, while anything below fifty signals poor conditions. The survey released yesterday showed a poor rate of seventeen.
Without a resurgence in domestic labor, the growing supply of homes will continue to outnumber the demand of prospective buyers and saturate the housing market. Even though the unemployment rate fell below 9% in January, whether the economy can sustain positive job growth is indefinite, particularly with rising energy costs.