Wednesday, November 19, 2008

Housing Starts And Permits Fall To Record Lows

October brought us, among other things, record lows for housing starts and permits, according to a U.S. Census Bureau news release. Housing starts reached an annual rate of 791,000 in October, the lowest level since the department began tracking starts in 1959, according to a CNNMoney article. Building permits also fell 12 percent to an annual rate of 708,000 in October, breaking the previous low of 709,000 in March 1975, according to the same article. While this is certainly bad news for homebuilders and the economy, it is just what the real estate market needs to eventually recover.

Most people are stuck on how these numbers are horrible things, unable to see past the initial job losses and financial stresses on homebuilders. The truth is that this is 100 percent necessary right now, and the market is doing exactly what it needs to do. There are way too many homes for sale right now and the last thing we need at this time is more homes to add to that bloated tally. We need to cut the amount of new homes being brought onto the market and allow the existing inventory to move. Once the existing inventory gets back to normal ratios, then we might actually begin to see a recovery in the real estate market.

The bad part is that homebuilders are always behind the curve. They stop building too late and they start building too late. This means that, in all likelihood, homebuilders are going to be slow to respond once the need for new housing is already upon us. When that time comes, we are likely to see a run-up in prices on existing housing as buyers are forced into competition for available housing. There is no need to panic, though, if you are in the market for housing, because we aren’t going to hit that point for a long time.

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