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Housing Starts Bounce Along Bottom, Hit 598K, Beat Expectation Of 550K As Housing Inventory Surges
August Housing Starts come at 598K, on expectations of 550K, as the bounce along the bottom is now nothing but noise. None of this is relevant as the most recent (July) existing home inventory number hit 12.5 months from 8.9 months prior, and even with that in mind, the starts number is the largest since April 2010. Which merely means that even more spare capacity will be added. Of course, with the GMAC Mortgage scandal front and center, this whole statistic may soon be quite irrelevant should foreclosures grind to a halt. Oh, and this being a US Census number, the prior number was obviously revised lower, from 546K to 541K. No surprise there.
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Getting uglier quick.
Great site, TD. Makes me wonder what I did in the mornings before you were around.
To offer a contrarian view as well: it's also the biggest jump in new housing starts since early 2009 - which also marked a bull run-up in the stock market.
It's still low compared to historic levels of 1m+ new housing starts in most of 2006-2007, when the private mortgage industry led the housing bubble to insane levels ...
High inventory levels are relevant but there are two additional factors that mute its effect: firstly, the recession has played out assymetrically in the US so there are geographical areas with large inventories - and with lots of unemployed people who cannot buy them.
New housing on the other hand concentrates more on higher growth areas. I.e. we cannot automatically offset high invetories with new housing in a scalar manner if they dont happen in the same geographical ares.
Secondly, it may also be cheaper to buy a new house because banks will rather list in-invetory new units at inflated prices than sell them at depressed price levels - causing knock-on effects in their mark-to-market calculations and in their real-estate portfolios. There's also 'stickiness' in home building (as in most other economic activities) - they will happen at around (or even below) the break even point even if it makes little economic sense - just to weather the storm and to give the next month a chance.
So growth in new housing has its distinct attractions, even with historically very high existing homes inventory levels - if there's assymetry between the geographic location of inventory and new units.
All in one, this is not the point where I'd confidently go short on the S&P. YMMV.
"Great site, TD. Makes me wonder what I did in the mornings before you were around."
I used to get my kids to school on time.
Who the hell is building more houses with over a one year supply currently on hand? Not to mention what will be added to the inventory over the next 6 to 12 months, as the foreclosure tsunami continues to roll through the US.
I'm starting to feel like there's no escape from the economic bullshit.
I ask myself the same question. I see new residential construction in NE Indiana and just laugh. Who the fuck is paying for it? And what do they think their IRR is? No escape is probably the best way of describing it.
My guess is as long as it's overly negative right now, they don't care. Let's say your a small home builder. You're not Lennar, but you're no mum and pop outfit either. You'll have plenty of capital locked up in physical plant, equipment, plus high ongoing costs supporting your higher skilled labor. You can probably let go most of the low skilled labor, they're easy to rehire, but if you've got a halfway decent business you don't want to put your 'good guys' out on the street.
That being the case, if you're not building houses, not bringing in SOME revenue, then you're dying much faster than if you are. Even if you're building houses at a slight loss, it's better than the hit of having your business bleed to death when you're not building homes 'because there's too many'. Home builders are in the business of building homes, not the business of managins optimum home volume for the country. If this means selling new homes for quite a bit cheaper than existing, I'm sure they're doing whatever they can do to keep building.
I'm sure a lot of these builders are just trying to wait out the competition. When you've got 12.5 months of supply on the market something has to give, there's going to be a lot of homes not going anywhere for a long time.
A friend in Virginia is doing exactly that, not in housing but road repair/construction. He's bidding in jobs at 10 percent below cost to keep his crew together and use his equipment. It rusts out faster than it will wear out. He has deep pockets, and wants to survive this. What will the competition do? Probably bid the next round 15 percent under. And so it goes.
As to the starts number, it's bull shit. Multi-family is up 33%. Plenty of free HUD housing, utilities, and cable TV for Yolanda and Tyrone. No soup for you, white boy.
The election cometh.
It sounds like what the steel industry was doing in the 1990's. The biggest mills would price just above their unit variable cost in order just to keep going. Just as you indicated, the fixed cost at this point is "sunk". Capital improvements were ignored as well as the future threat of pension liabilities. This is what killed LTV Steel in Cleveland.
They're losing money on each sale, but making it up through volume (not).
That is really fucking grim. And on that note, I'm off to a food auction...
Food auction??? I want to hear more about that
It was at 200S 300W in LaGrange County Indiana, U.S. of Fuckin A
It was produce and mums. Goes on Tue-Wed-Thur. I took a picture and would post it. Massive action. Amish didn't even blink at my Caucasion (Jackie).
The NYSE is a joke next to this.
Nor at my Caucasian (Jackie).
I junked you for stating the following:
"Even if you're building houses at a slight loss, it's better than the hit of having your business bleed to death when you're not building homes"
I work at a small commercial construction firm, and I PROMISE, we will stay in business a lot longer with no work going on than we will doing jobs for a loss.
Honestly, how fucking business ignorant do you have to be to knowingly take on the risks associated with building (injuries, lawsuits, people not paying their invoices on time, and on and on) for a projected loss.
Plus, "keeping people working" eats into your capital more quickly as well since your overhead increases for each worker on the payroll (match SS, pay workers comp, etc), eating into your reserve capital at an accelerrated rate.
I thought knowingly and willingly performing a task at an operating loss was something only morons in government did.
And you explain the number of houses built how?
I think you missed the bit where I said 'slight'. By slight, I mean building/selling houses at or near cost.
What sort of commercial construction? Do you sweep the floors or run the place?
It all depends on how big the loss is, how big the company is, how sizeable their fixed costs are etc. Unless we're talking about companies who's 'equipment' consists of a couple of hammers and a shovel and someones mum is the back office.
When you're not building homes your variable costs are obviously down. What are your fixed costs? If you've got sizeable amounts invested in non variable labor costs, land inventory, equipment, equipment storage, equipment maintenance, liability insurance, other insurance etc etc and/or plenty to pay on debt servicing the last thing you want is zero cash flow.
I'm not talking about giving away free homes for crying out loud, I'm talking about maintaining cash flow to keep a business alive. If you're a home builder, that means building homes.
In my book, selling at cost is selling for a loss, but that's another conversation.
To answer your question, I don't currently run the place, but I hope to in the future. Started in the field as a carpenter, moved to superintendent, then general foreman. It is year number 7 for me in the business, and I am finally in the "office" as an estimator/project manager. I hope to become the majority owner and president at some point down the line (this makes a large assumption that the current system survives that time frame).
All that aside, I think I found my disconnect with your statements. You are talking about businesses with debt. Our business has none, and hasn't for 9 years now. Since there is no debt to service, cash flow is only a problem if our customers don't pay us. Hasn't been a problem since we work for larger companies (McDonalds, Dairy Queen, GE, DuPont, local school board, YUM brands, etc).
I guess what pisses me off is that people base a business model around DEBT to begin with. I don't think that any business should be BORROWING money that must be repaid with INTEREST. This is not what CAPITAL FORMATION is about. It is about people who believe in something putting up their capital for a share in the hoped for future profits. And a loss should stay a loss, with no transfer to uninvolved third parties.
If you hope to be a majority own down the line when you're currently working as an estimator (with no ownership), you're either already wealthy, or hoping to come into some money somewhere, or it's a very small construction firm - especially given you're anti debt. Sure, any company that has minimal fixed costs is better sitting on their hands doing nothing, than willy nilly putting up houses. The higher the fixed costs get (which aren't just debt), the more ongoing cash flow is critical, the more likely they are going ot be trying to keep things turning over (building houses).
As for the 'evils' of interest, that's another discussion entirely. Generally there's no gun going to someones head making them take on debt at interest. Given that's the case, I've got no problem with entities borring money to later repay with interest, if that's what they choose. The problem with interest at the moment (particular with regards to real estate) is that the rate charged is completely disconnected from the risk associated. I think it's ridiculous every time I hear "interest rates are at an all time low" - for who? Basically because the government will backstop most all home loans etc, all lenders give a shit about is meeting whatever the government criteria for the day is. Instead of a lender determining the interest rate based on the risk of the borrower, it's some aribitrary market rate. Ridiculous.
Sunk cost has a lot to do with it, as implied in your comment. A builder has overhead which he will pay regardless of whether he builds a house or not, he has payroll as well, he has tools and vehicles. All of this is cost that is either due or already spent. All he has to add is land (some builders already having that as sunk cost) and the materials. Presto! House. He's only down for a loss if there is no buyer at any price. An existing house is a whole 'nother matter. All those costs have to be considered in the value as if a builder were starting from scratch. My conclusion obviously differs from the comment above this one.
I heard on the news it was multifamily structures. apartments.
Wonder if it includes "manufactured housing"? Kits, Jim Walter, houses with wheels on 'em, modulars, and log cabins.
Still building like crazy in Austin. And people are buying. Then, again, Austin is still growing, and will be for the foreseeable future.
Another state capital growing...
Austin had a pretty good entreprenurial scene, is that where the growth is coming from or is it all government?
It's from the entreprenurial side. The state has a good business environment, and a low cost of living, along with no state income tax. So that is appealing.
The city of Austin is a fun, safe city. People here are generally friendly. The politics are liberal/libertarian in the city, moderate conservative/libertarian in the burbs.
It's a tech town, and while there are plenty of large companies, the growth is in the small business sector. The film industry is picking up as well.
Government virus jobs are here, but are not as prevalent because our state government is only in session every other year. Yes, that is awesome. So the lobbyists are spread around the big cities.
The biggest downside is that Rick Perry (RINO supreme) is defacto king of Texas.
The broken system won't stop as long as they pump money into it. Look at stocks.
Moron in my neighborhood has his house listed for sale. Open houses every weekend. NO ONE came to look.
why selling? Because he and his wife want to build their dream house...another middle class home. Not even a mcmansion.
The trouble, they started building before selling their existing home. They've got zero chance of selling since they bought the home in 2008, and that bad boy is atleast 30% underwater right now.
They'll be the proud owners of two homes, one income, and foreclosure will follow.
Just to parse the data a bit more, note that single family starts have actually been consistently down the last few months, the driver is multi-unit (and keep in mind, a 25 unit apartment building counts as 25 housing starts), and much of that is going to be rented vs. condo'ed.
Speaking as someone actively in this industry, most of this is in anticipation of a ramp in section 8/section 42 subsidies.
Thanks for the insight, very interesting.
Ahh ... now it makes sense!
This number will be revised downward on November 3
You got it, 25% increase in Defaults over same period last year, and 94k more homes forclosed on....who's going to occupy those, and who can afford them?.
Oh, I forgot the Recession ended in 2009.
And...futures up. How gives a fuck anymore?
AM fix and PM fix on stock market just like gold market.
Housing Starts Zoom 10.5% in Surprise Sign of Optimism.... that's the CNBC.COM headline.
And I thought I was done puking yesterday after watching Obama crush softballs out of the pee-wee lot on CNBS.
What a joke.
They have been pushing the "goods news" hard lately. I assume the new plan is to brainwash the public into thinking the recession has ended, and good times are ahead. I think that even if every sheeple in the country bought the propaganda, we are in so deep we cannot and will not recover. Why continue the charade then? An election in Novemeber?
New plan??
Maybe I should clarify and say "newer plan".
Why not just crash the market before the election? The democrats apparently ended the last recession in summer of 2009, so they'll be idea candidates to fix it again.
Spot on! That’s exactly the game plan now.
Don’t give the people with jobs too much credit, most are still sheeple and buying this shit.
WAR IS PEACE, FREEDOM IS SLAVERY, and IGNORANCE IS STRENGTH.
2/3s of gain was due to multi-family starts.
The housing sector must be getting direct injection from the Fed/Treasury to build in order to improve the indicator. There is no one out there buying, even mortgage apps have been down. So the question of the century is, who the heck is buying right now?
BTW can anyone explain how the DJI goes up when money flows were negative? http://online.wsj.com/mdc/public/page/2_3022-mfsctrscan-moneyflow.html
It's kind of like the natural gas producers - they can't help themselves, raising tremendous amounts of capital (stock and debt) to produce more and more, even though we are awash in natural gas and the price is very low. Home builders and REITS are similar to me. Awash in real estate inventory, yet more houses being built, of course it doesn't make sense, but do you think they are just going to close their doors and take a 5 year sabbatical while we work through the excess inventory? Anyhow, a 10 percent increase on a very low number still results in a very low number, historically speaking.
Broker friend of mine told me her office had 17 showings this past weekend for over 400 listings.
Where's the office?
High-end residential--midwest.
Makes sense. That tag reads on me and my neighbors. They're clueless as to what's going on. I've never seen a bigger disconnect between the perceptions of the haves and have nots. My RE agent was shocked by my opinions on future price action, but not because she disagreed.
the ONLY conclusion to be drawn here is that house prices will decline more than previously expected
f***ing jerks
+1
New housing should require 20 percent down payment, existing housing 5 percent down, as an incentive to work off existing inventories..
What and kill the already dead homebuilders.
Maybe they should just be forced to survive on the merits of their business model.
Oh! What a concept. Sanity prevails.
The congressional budget office made some interesting forecasts for 2009-2012 in which they outlined 3 scenarios for housing starts. For 2010, they made the following forecasts:
1. Their optimistic scenario: housing starts would run at 1,7 million.
2. 1,23 million was their cyclical downturn scenario
3. 600k was their pessimistic scenario.
According to the CBO, housing starts at 600k would mean a sub par recovery until 2012. (Unfortunately, I'm unable to cut and paste the relevant graph here). When we know that every economic recovery is either lead or accompanied by a surge in housing starts, it is kind of obvious where we are in this "recovery".
Only contributors can post images. Put a link to your graph.
I was driving along A1A towards Sebastian Inlet yesterday. Many,many ocean front and riverside houses for sale. And these were really beautiful homes.
What got me was there was one luxury ocean front home being constructed while almost identical homes on each side of the house going up were both for sale with the newly reduced verbiage on each for sale sign. There were many, many for sale signs in that area. And these were also really nice houses and condos. Of course since Charlie Crist drove most of the insures out of the state maybe they just can't afford to insure the properties and decided to pull the plug.
I then had the very profound thought of WTF?
Wily Coyote Phenomna. Homebuilders build homes until they run out of land. There's no more to the equation than that.
Wasn't homebuilder 'confidence' at record lows just days ago?
Wow, that's wierd.
If you were a builder and knew that starts had increased by 10% when there's already a 12.5 month supply, where would your confidence be?
My guess is a lot of homebuilders are starting to hope there's not many others left.
Weird huh? Just Friday builder confidence was at an all time low, foreclosures all time high. Now suddenly a couple days later and housing starts are up 11%? Huh, weird, well Im sure the Kenyan fraud and the media isnt LYING or anything to try to pump up their pathetic approval ratings, couldnt be.
Ok Folks this IS my SWEET SPOT - I work for the market leader (more than 40% market share) in construction equipment manufacturing whose primary market is residential construction - needless to say it has been difficult - HOWEVER THIS NUMBER IS A TOTAL FARCE - in August, especially in northern areas of the US & Canada is pretty much your last chance to start a home & complete it before winter sets in (& construction costs rise substantially), so I wasn't surprised to see this value higher, however I CANNOT believe 10.5% higher - our order book clearly would have depicted such an increase, however, it did not-the telling sign here is permits & that value does correlate with our customer base - gotta say would love to believe it but I think the Census is clearly overstating the actual activity - and to factor it into the volatile Multi-Family area is genius because they can revise it without statistical consideration - Amazingly last month's number which was one of the worst on record was revised DOWN - and I CAN say this WITHOUT reservation - this NUMBER IS WRONG & does NOT reflect the reality in the residential construction markets - Methinks I hear strains of MacBeth 'The Census doth protet too much' - Great post - thanks for all your efforts
Thanks for sharing that.
You are very welcome - Zero Hedge is all about the TRUTH - no matter how much it hurts or the perception that Uncle Sam (some might say Uncle Scam) is trying to portray - Single Family starts were up 4.3% which is historically aligned with the industry seasonality - Multi Family Starts were up 32.2%!!! Bwwwwaaaahhhhh! Whatever Census is putting in the water I want some!
I havent seen a house being built around here in a good while.
"Prove it" - Ben, Timmy, & Barry
Yes, thanks for the comment. What would your sales look like if most of this was multi-unit housing, where one unit equates to one start? In preparation for an increase in Section 8/42 subsidies, as claimed by PanAfrican Funk previously?
Actually, our US sales were up about 3.1% for August which is in alignment with single family numbers & permits - expectations from the industry is sales will be up anywhere from 3-5% for 2010, however EVERYONE including CAT, Deere & the like are VERY concerned about 2011Q1 - most have begun preparations for factory slow-downs if not full week shutdowns in January/February - HOWEVER, this is off a very low comparison base - 2009 was a disaster - Multi-Family permits have a longer 'shelf-life' & can be extended for very little cost - many times developers can negotiate terms with the local authorities especially in terms of property taxes - i.e. if property taxes are to increase in a certain area - a start commitment can 'lock in' last year's rate - especially in light of the new real estate sales comparisons or 'comps' - as far as subsidized housing is concerned there are rumors & some workable bid requests BUT nothing concrete - the construction equipment industry is going thru an EPA mandated Tier IV engine upgrade - similar to trucks to eliminate/reduce pollution a few years ago - this will raise the price of the equipment (will increase equipment costs approximately 22% on average), however, in 2012 the law comes into effect, therefore, we anticipate an increase of sales due to the buy-ahead (pull demand forward) in 2011 - provided credit lines in the Small/Medium Business Space can be maintained
"a start commitment can 'lock in' last year's rate - especially in light of the new real estate sales comparisons or 'comps' - as far as subsidized housing is concerned there are rumors & some workable bid requests BUT nothing concrete "
Ahh, maybe you have used the magic-truth word? How can we tell how many cubic yards of concrete have been pre-ordered for these permitted projects? From the best I can tell, in my area homes are about 90% more likely to be built on a slab rather than pier and beam. If the concrete giants around here (TXI, etc) suddenly take off, then I'll know the starts are real and not just permits to hold a builders position for a projected recovery.
You notice the desperate pumping, $5 billion daily POMO's, mainstream news for the idiots is 'ALL is WELL!! Recession OVER'!!
'Housing starts' here are being reported as 10% up? Every possible piece of news is getting whipped cream and a cherry on top.
Just Orwellian as hell, all of it.
its a con and this will all end badly
Sounds like bullshit. If it's still unrevised after the elections, then I'll believe it.
HOUSING TRENDS (JUST RELEASED)
http://williambanzai7.blogspot.com/2010/09/housing-trends-just-released....
There is a couple of big HUD housing complexes under construction here, maybe the same everywhere.
One wonders if existing home inventory will cross into the 24 month territory at the same time as the Dow crosses 36,000 and the NBER retroactively time stamps the beginning of the depression to July of 2009.
+1000
I can't wait to see all the tarp-fed bailed out banks choke on their shadow inventory...good luck getting another handout when the collusion, price fixing and general fraud becomes even slightly more obvious. Politicians save their own ass first, always. Oh, and don't worry I don't think they hang the banks to help the little people, that may just be an unintended benefit of ensuring their own ass is saved.
I was really starting to worry that we'd run out of houses, like Cramer prophesied last year.
Home Depot changes name to Mosque Depot...
Lock in profits at this point?
I live near the ocean and there are several new homes on the water under construction. Folks with serious dough are taking advantage of the good prices on labor and materials. Yet tons of unsold homes are everywhere around me. I think we are in the eye of the storm. There is some business activity. I went to the Newport, RI boat show last weekend. It was the biggest crowd in years. Mostly folks buying food & tee shirts but not boats. Sales were very slow dealers told me.
Cheap entertainment...funny I went to the mall this weekend and thought wow seems busy. But once there realized most people were eating (wow you'd think they take a break from that having gotten a look at some of them) and were one small bag shoppers. Didn't see any "big" shopping happening like the good old days. Which makes sense -- I buy a lot less than I used to. While I was never a huge shopper, a few years ago there were a lot more things I would have thought I couldn't live without that I now don't even consider buying.
Drove a 600 mile home inspection route last week in Iowa. Lots of little towns full of for sale signs. I was amazed at the amount of new building going on. I remarked to the wife that if this economy doesn't collaspe by Jan.1, I am quitting all the negetivity and believeing in recovery. Never thought I'd be thinking that. Still, when I grocery shop, I by 1/2 weeks stock up for each weeks food use.
" I by 1/2 weeks stock up for each weeks food use".
What do you mean by this?
How are the new FEMA concentration camps permitted? Mucho-Multi-Family, or what?
Well, I will believe we are ON the road to recovery, when the 15 million folks who are unemployed, or under employed get jobs.......and we stop seeing 450k new filings a week for UE.
Until then, blow smoke up someone else's ass.
Hope some of you heard the lady who voted for Obama read his as the riot act yesterday,about 3-4 full minutes worth, and the LAME ass answer he gave her was sickening.
http://www.msnbc.msn.com/id/39269310/ns/business-real_estate/
Chew on this............................
And more, OECD recommends VAT TAx for US...............plus look at the UE Rate, boy are they off.
http://www.telegraph.co.uk/finance/economics/8013515/Millions-of-Americans-risk-exclusion-from-the-job-market-forever-OECD-warns.html
These stats are just BS like every other gov-wall st lie. Housing is Dead!
Thanks for such a great post and the review, I am totally impressed! Keep stuff like this coming!...
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