Homebuilding Market Hits A High Note In September As Housing Starts Rebound

Oct. 19, 2006
When the U.S. Census Bureau’s Oct. 18 report on monthly housing starts showed an increase in September, it was a clear

When the U.S. Census Bureau’s Oct. 18 report on monthly housing starts showed an increase in September, it was a clear call for sanity in the midst of all the hysteria in the financial press about the conditions of housing market.

Although the building craze in most markets has slowed, September’s housing statistics may prove that the downturn may not be as deep or as widespread as previously anticipated by Wall Street wags.

Nationwide housing starts in September regained the ground they lost in a steep decline the previous month. September housing starts rose 5.9 percent to a seasonally-adjusted annual rate of 1.77 million units, in close alignment with July’s 1.76 million-unit rate and the third quarter’s average of 1.74 million units. Single-family starts were up 4.3 percent to a rate of 1.43 million units, while multifamily starts were up 12.7 percent to a rate of 346,000 units.

As the nation’s publicly owned homebuilders have learned in recent weeks, it’s a short ride on Wall Street from the penthouse suite to the sub-basement. With their focus on quarter-to-quarter earnings, stock analysts seemed to have forgotten that the housing market supported the U.S. economy during its most recent recession in 2001-2003, and that historically speaking more homes are being built now in the United States than at almost any other time in the past decade. According to a recent report by CNN/Money.com, although the most recent monthly rate is still well below all the monthly readings from the second half of 2003 through the first half of this year, only one month in the 10-year period from 1992 through 2001 had more housing starts.

“While the Census Bureau report showed that some real strength remains in the national housing market, all of the increase in housing starts was registered in the South and Midwest, where relatively good weather conditions apparently encouraged builders to draw down their backlogs of unused permits,” said National Association of Home Builders (NAHB) Chief Economist David Seiders. “But we believe the trend for housing starts is still downward at this stage of the game, as evidenced by the ongoing slide in issuance of new building permits and the significant decline in the inventory of previously issued permits.”

Issuance of total building permits, which can be a good indicator of future building activity, declined 6.3 percent in September to a seasonally adjusted annual rate of 1.62 million units. Single-family permits were down 6 percent to a 1.21 million-unit rate while multi-family permits fell 7 percent to a rate of 412,000. Permits were down 3 percent in the Northeast, 6.9 percent in the Midwest and 9.5 percent in the South, and recorded no change from the previous month in the West.

“Builders are reacting to current market conditions by pulling fewer new permits and instead focusing on their backlogs of existing orders,” noted NAHB President David Pressly, a homebuilder from Statesville, N.C. “They’re also stepping up incentives to help sweeten the deal for potential buyers.”

In the midst of these mixed market reports, one homebuilder proudly announced plans for a posh new condo tower in downtown Manhattan. Toll Brothers City Living, a division of Toll Brothers, the luxury home builder based in Horsham, Pa., is moving into the Big Apple with its first high-rise condo project. The 21-story tower will have 77 housing units priced from $850,000 to more than $2 million. It’s expected to be ready for occupancy early next summer.