Markets get an early present in new-home data

Sarah Gardner Dec 19, 2006

KAI RYSSDAL:Six days before the fat man slides down the chimney. But the Commerce Department wrapped up an early present for the markets today. Don’t spoil the surprise for the kids, but it came in the form of a positive number on new home construction. Housing starts were up last month, a welcome increase after a huge drop in October. Some of the biggest home builders in the country say they now see signs the housing market is stablilizing. But Sarah Gardner reports it all might add up to a big lump of coal.

SARAH GARDNER:The number of new homes under construction shot up 6.7 percent in November, a bigger uptick than Wall Street expected. But nobody’s breaking out the champagne — especially economists, who like to call these sorts of rebounds a “deadcat bounce.” After housing starts plunged over 14 percent in October to a six-year low, today’s modest rebound was nearly guaranteed. Standard and Poor’s chief economist David Wyss puts the housing market in context.

DAVID WYSS: Year on year we’re down about 25 percent. That’s bad. And I think it’s gonna stay there. We’re aiming for less than one and a half million starts next year.

Fueling the pessimism was news today that permits for new home construction dropped 3 percent in November to the lowest level in nine years. Economist Diane Swonk at Mesirow Financial says amid all this misery there’s one consolation for homebuilders. It’s called “It coulda been worse.”

DIANE SWONK: Although the Fed hasn’t moved, the treasury market has. And in fact mortgage rates dipped below 6 percent in recent weeks, which is just an enormous help on affordability.

Swonk says that’s helped mitigate the industry’s losses somewhat. But David Wyss predicts mortgage rates will go up again next year. He predicts the housing slump will continue through 2007. Homebuilders publicly say they see signs of hope. But when the CEO of luxury homebuilder Toll Brothers expressed slight optimism on a recent Wall Street conference call, one cheeky analyst asked him which Kool-Aid he was drinking.

I’m Sarah Gardner for Marketplace.

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