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Residential Real Estate News
Metrostudy Reports National and Local Housing Starts Plunge
(News Source: Metrostudy)
(HOUSTON, TX) -- Consistent with the latest national housing starts figures released today by the U.S. Department of Commerce, national housing market research firm Metrostudy maintains its forecast at 490,000 starts for calendar year 2009. Metrostudy's own count of starts in dozens of local markets bears out the finding that construction activity remains low.
Many general economists are still forecasting 520,000 to more than 550,000 starts, but the housing economists at Metrostudy see it differently. "We expected the sharp drop in the April number, as we did the March decline," said Brad Hunter, Metrostudy's chief economist and national director of consulting. "Starts are low for three reasons. First, builders are still working off inventory that is already built, although that supply has been greatly reduced. Second, some builders' banks are cutting off their credit even if they are current on their loans. And third, some builders are finding prices too low to be able to sell homes profitably."
The national housing starts data reported today by the Commerce Department (458,000 starts in April at a seasonally adjusted annual rate) indicates home production is down sharply for the year. The latest research from Houston-based Metrostudy confirms this trend, reflecting significant cutbacks in local markets across the country. Metrostudy's forecasts have been calling for sharp reductions in production in order to reduce new-home inventory in the market, which remains high in almost every metropolitan area nationwide despite recent reductions.
Metrostudy's forecast for 2009 starts has changed only marginally since the beginning of the year, and the actual numbers have borne out the forecast to date. The decline is steeper for the year than many general economists have been predicting, but Metrostudy's forecasters project that starts will not fall much farther from this point, although more declines are likely in the multifamily sector. "We are probably bottoming out in terms of single-family housing starts right now, but that does not mean we will return to the boom levels," Hunter said.
Conducting its own count of builder starts in subdivisions, Metrostudy collects data on a much more detailed basis than the Commerce Department does, starting with a 100 percent count of activity in individual projects within 256 counties comprising all or part of 84 Metropolitan Statistical Areas. The firm's latest numbers, for the first quarter of 2009, show significant variation among markets.
"Homebuilders are still challenged by economic conditions, but there are some positive trends," Hunter said.
- Homebuilders' sales and traffic are up, and traffic quality is greatly improving. Traffic quality refers to the likelihood that a person visiting a builder's model will buy a home. This trend is especially evident in California, but is evident nationwide as well. Even downtrodden Las Vegas has shown improvement in the last two weeks.
- New-home inventory is declining.
- Foreclosures are being purchased enthusiastically, but the flow of additional REO is still daunting."
Metrostudy updates its data quarterly. The following chart shows the starts and absorptions (the number of move-ins removing homes from inventory) in some of the markets that are still starting a significant number of homes (total starts for the 12 months ended March 2009). "It is encouraging that absorption is running higher than starts in all of these markets, now that builders have slashed their output," Hunter said.
Metrostudy also tracks various measures of housing inventory. Most important in determining the direction of starts and also the downward pressure on home prices: finished, vacant inventory and the months of supply. "The higher the months of supply, the greater the downward pressure on starts and prices, and Orlando and coastal southern California, along with Las Vegas and San Diego, have the most severe problems," Hunter said. A normal months-of-supply reading is between 1.5 and three months in most markets, and all of those shown in the chart below are well above that level, suggesting there is still significant adjustment to come.
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