Thursday, December 16, 2010

Housing starts up, slightly, but building permit activity is down

One of my favorite things to do is to listen to business news on Bloomberg (on Sirius satellite radio). And, I do that every chance I get. My "all time favorite" business news show is the one that is hosted by Bloomberg's Tom Keene and co-hosted by Ken Prewitt. If you are interested in what's going on in the business world and have not dialed into that show, you are missing the best business news show on the planet.

A while back, before the recession began to get real deep, some financial analysts (some of whom follow and report(ed) on ARC) apparently were of the opinion that the fall-off in the "residential" development sector was somewhat isolated, meaning that, even though residential was falling off and expected to decline further, it would not have much of an effect on "non-residential" development. In one of my earliest blog posts, I said that the decline in residential development would have a trickle-down effect on all types of development, including the non-res development sector. And, I gave my reasons for why that would happen. Well, I was right and "they" were wrong. I am not perfect, nor am I even all that smart. But, when you've been in the reprographics business and industry for many, many years, you do experience (i.e., "see") the ripple effects and trickle-down) (or trickle-up) effects that impact the A/E/C Industry and, thusly, that affect the Reprographics Industry.

Although the Home Builders Index is still very, very soft (at 16, as mentioned in one of my blog posts yesterday), it was reported, this morning, that housing starts are up .... slightly. That's always a good sign for people who are hoping that recovery in the A/E/C industry is coming. We still have a long way to go to see housing (residential construction) recover (we still have this very big, very ugly foreclosure thing to get through), but any uptick in activity, no matter how small in the beginning, brings hope that the future will be brighter. And, reprographers are a hopeful bunch.

Found on Bloomberg ....

U.S. Housing Starts Rise for First Time Since August
By Shobhana Chandra - Dec 16, 2010
Builders in the U.S. began work on more homes in November for the first time in three months, showing the industry is struggling to recover.

Housing starts rose to a 555,000 annual rate, up 3.9 percent from October’s 534,000 pace that was higher than initially estimated, Commerce Department figures showed today in Washington. The median estimate in a Bloomberg News survey called for a 550,000 pace. Building permits, a proxy of future work, fell, reflecting a drop in applications for multifamily projects.

Companies like Toll Brothers Inc. anticipate the industry that triggered the worst recession since the 1930s will regain its footing in coming months after the end of a tax credit caused demand to slump. While low borrowing costs and prices may help entice buyers, mounting foreclosures and unemployment near 10 percent mean housing will take years to fully rebound.

“Housing remains stuck in the mud,” said Aaron Smith, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who correctly forecast the pace of starts. “Builders are in a wait-and-see mode. Foreclosures are still problematic and the recent backup in mortgage rates poses a significant threat.”

The median forecast was based on a survey of 76 economists. Estimates ranged from 520,000 to 595,000.

Permits dropped 4 percent to a 530,000 annual rate, the lowest level since April 2009. They were projected to climb to a 560,000 annual rate, according to the survey median.

Fewer Claims

A report from the Labor Department today showed fewer workers unexpectedly filed first-time claims for unemployment benefits last week, pointing to a labor market that is on the mend. Applications for jobless insurance payments fell by 3,000 to 420,000, the lowest in three weeks.

Another Commerce Department report today showed the current- account deficit widened to $127.2 billion in the third quarter, reflecting an increase in imports. The gap, the broadest measure of international trade because it includes income payments and government transfers, was the biggest in almost two years.

Stock-index futures were little changed after the reports. The contract on the Standard & Poor’s 500 Index maturing in March rose 0.1 percent to 1,233.5 at 8:46 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 3.50 percent from 3.53 percent late yesterday.

Year-to-Year Drop

From the same month last year, housing starts fell 5.8 percent, while permits were 15 percent lower.

Construction of single-family houses increased 6.9 percent to a 465,000 rate, the highest level since April. While permits also rose, by 3 percent, the 416,000 level of applications in November signals work may slow in coming months.

Work on multi-family homes, such as townhouses and apartment builders, dropped 9.1 percent to an annual rate of 90,000, a third consecutive decline and the lowest level since June. Multifamily permits plunged 23 percent to a 114,000 pace.

Three of four regions showed an increase, led by a 16 percent increase in the Midwest.

Americans have pulled back on house purchases following the expiration of a tax incentive of as much as $8,000, which required that contracts be signed by April 30 and closed by Sept. 30. Sales of new and existing properties fell in October. Figures for November are due next week.

The recent increase in mortgage rates may also cool demand. The average rate on a 30-year fixed loan was 4.61 percent in the week ended Dec. 9, up from the record-low of 4.17 percent reached in November, according to McLean, Virginia-based Freddie Mac, which began keeping data in 1971.

Fed’s Concerns

Today’s report is a reminder why Federal Reserve policy makers, who met Dec. 14 for the final time this year, say housing is lagging while the economy rebounds. They cited declines in home values as one of the constraints on consumer spending.

“The housing sector continues to be depressed,” Fed officials said in a statement after the gathering, at which they reiterated a plan to expand record monetary stimulus and said economic growth is “insufficient to bring down unemployment.”

Home values are poised to drop by more than $1.7 trillion in 2010, according to Zillow Inc., a closely held provider of home price data. This year’s estimated decline, more than the $1.05 trillion drop in 2009, brings the loss since the June 2006 home-price peak to $9 trillion, Seattle-based Zillow said on Dec. 9.

The National Association of Home Builders/Wells Fargo’s confidence index was unchanged in December from a month earlier, a report showed yesterday, indicating developers remained pessimistic.

Builder Outlook

Even so, the housing market will avoid a double-dip after reaching a bottom last year, and the industry will gain momentum in 2012, according to Douglas Yearley, chief executive officer of Toll Brothers, the largest U.S. luxury-home builder.

“The recovery is here to stay,” Yearley said in a Dec. 7 interview in New York. “I think 2011 will be an improving year, but I think 2012 will be a big year for us.”

While the number of visitors to its sales offices isn’t up, Horsham, Pennsylvania-based Toll is seeing more “quality” visitors, a sign buyers are less skittish about the market and more serious about purchasing, he said.

To contact the reporter on this story: Shobhana Chandra in Washington

To contact the editor responsible for this story: Christopher Wellisz at

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