Housing starts . . . er, stops

Scott Jagow Sep 19, 2006


SCOTT JAGOW: The housing market’s been a speeding train the last few years, but now, the brakes are definitely on. The government said this morning new home construction fell six percent last month. That’s double what was expected. And it’s the fifth drop in six months. Chris Lowe is chief economist with FTN financial in New York.

CHRIS LOWE: The story here, it’s all about the big home builders. Major home builders came into this year with enormously fat profit margins, very aggressive plans to continue building and suddenly sales dried up and it really was a very quick turn in the market. So the idea was to keep building new homes but to start cutting prices And that was the strategy over the last several months but it looks like it wasn’t working very well.

JAGOW: So we’ve been in this huge boom for the last five years. Where does this leave us at this point?

LOWE: That’s actually kind of interesting too because you look at housing starts and remember starts are literally new projects getting underway now. So here we are in an environment that’s considered pretty lousy by most people, starts are at a three and a half year low, but that still by historical standards is pretty strong at 1.6 million.

JAGOW: A drop in housing starts, how does that affect the housing market?

LOWE: It should be the beginning of clearing the market. You know, the biggest problem right now is that there are just too many houses out there for sale. So fewer starts means you’ll have fewer houses coming on the market at year from now. This is one of the reasons it takes such a long time for a housing boom once it ends to really play out. If you look back at the late 1980s for example, housing starts peaked in 1986 at the same time as sales, but it wasn’t until five years later that both sales and starts started heading upward again.

JAGOW: Economist Chris Lowe.

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