Home construction falls 33% in 2008 to lowest level in at least 50 years
Construction on new homes took another turn for the worse in December, falling more than 15% to a seasonally adjusted annual rate of 550,000, the lowest on record, the Commerce Department reported Thursday.
Permits to build single-family homes fell 12.3% to a record-low 363,000 in December, while total permits including apartments dropped 10.7% to a 549,000 annual rate, also a record low. Building permits are considered a more reliable guide to the state of the housing market, because they are less affected by weather conditions than the housing starts figures.
The report was much worse than expected for the second consecutive month. Economists surveyed by MarketWatch were looking for a smaller drop to an annual rate of about 600,000, thinking that November's 15% decline in starts wouldn't be repeated. It was.
Since June, starts have plunged 49%.
For all of 2008, housing starts fell 33% to 904,000, the lowest pace of new construction since the government began keeping records in 1959. In all of 2007, 1.355 million homes were started. Building permits fell 36% in 2008 to 892,500.
Similar but not identical government data show construction in 2008 was at the lowest level since World War II.
The large declines in the past few months could be good news for the economy, on the principle that when you are in a hole, the first thing to do is to stop digging, said UBS economists Maury Harris and Jim O'Sullivan ahead of the report. "The more starts plunge now, the quicker home inventories are likely to be reduced, potentially limiting the ultimate drop in home prices (the main cause of the financial crisis)," they wrote.
Builders are working to reduce the inventory of unsold homes. In December, housing completions fell 5.2% to an annual rate of 1.02 million. For all of 2008, completions dropped 26% to the 1.12 million, the lowest total in 17 years.
The mood of home builders' has rarely been worse. The National Association of Home Builders reported Wednesday that its sentiment index fell to a record-low 8 in January. See full story.
The government cautions that its monthly housing data are volatile and subject to large sampling and other statistical errors. In most months, the government can't be sure whether starts increased or decreased. In December, for instance, the standard error for starts was plus or minus 9%. Large revisions are common.
It can take four months for a new trend in housing starts to emerge from the data. In the past four months, housing starts have averaged 698,000 annualized, down from 774,000 in the four months ending in November.
