November 20th, 2008 by Michael Oliver

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As reported in other posts here New Home Construction levels are currently at the lowest levels on record going back at least 50 years. On Wednesday The Commerce Department reported construction levels of new homes and apartments fell 4.5% percent in October. This marked the fourth straight monthly decline of this statistic, the annual construction rate fell to 791,000 units this is from a September rate of 828,000 number for forecasted new homes/ apartments to be constructed this year. These results are the lowest on record for the industry going back to January 1959. Prior to this the lowest rate of New Home/ Apartment construction had been January of 1991 when the US was also in a serious recession and housing correction.

Some people are further forecasting numbers for this metric to recede even more, Wachovia Corp. economist Adam York sees construction for new homes/ apartments will fall to around 650,000 units by next summer. He went on to state:

“The broader housing market needs fewer homes, we built too many homes in the United States and building less is one way to work off excess inventory.”

I happen to agree and have stated this for the past year, almost all new home builders here in Tucson have put their business is super slow mode. Very few of them are opening new communities or buying land in any way until they see some sort of improvement in the marketplace for new homes. I’m not sure if I agree with York’s figure of 650,000 for new home/apartment numbers the number in my mind will be less then this year but to drop another 17%-18% seems like an overly gloomy number, I guess time will tell if it gets that bad.

One important stat to note that was buried in the numbers is this; construction levels actually rose 7.5% in the West. This while levels in the Northeast were down 31%, down 13.7% in the Midwest, and also went up 1.5% in the South. Keep this in mind as (I still personally think that in Tucson the real estate market will see a recovery maybe super small but… this next year in 2009.) the housing markets got worse the sell off and decline STARTED IN THE WEST! Even today areas on the country IE: New York, New York is just now seeing the downturn in real estate 3 years after we started to see declines in Tucson, Phoenix, Los Angeles, San Diego, and Las Vegas. My thinking here is this the worst is behind the West (I’m not an expert about all those other cities but I would consider myself an expert on Tucson.) these cities while not seeing dramatic improvements should over the next 24 months start to see at least a halt to the serious declines that have plagued almost all cities in the Western US, and you will see the first signs of a rebounding housing market in the West since we were the first ones to start the decline. That’s just my thinking and I think some cities still have a LONG ways to go namely Las Vegas and Phoenix, but when the housing markets start a comeback the West should see the improvements first.

To finish the stats and commentary on this report building permits (the indicator of future construction and new homes) was down by 12% this month vs. last to an annual rate of 708,000. New Home Permits for single family homes fell 14.5% to 460,000 the lowest level since February 1982. In addition all the commentary and research I have conducted for this report also points that the Homebuilders are ratcheting up there efforts to get Congress to get a housing stimulus package for the new home industry. At this time it looks like the most popular plan put forth by the homebuilders is a 10% tax credit of up to $22,000 for homebuyers that purchase a home over the next year, AND a temporary interest-rate reduction on 30 year mortgages.