Housing starts fall

Home construction fell a seventh straight month during January and a sign of future building tumbled as high inventories and the recession sent builders into further retreat. Housing starts decreased 16.8% to a seasonally adjusted 466,000 annual rate compared to the prior month, the Commerce Department said Wednesday, much worse than Wall Street expected. Year over year, housing starts were 56.2% below the pace of construction in January 2008.

These data are "bad", but do we really want housing starts to rise with housing inventories still close to record levles relative to sales? No, we don't. So while this means the economy will be very weak in the near term, cutting down excess housing inventories is a critical component of getting home prices to stabilize (which is at the heart of the financial crisis, and won't occur until inventory/sales ratios for housing get back to to 7-8 months of supply from 13 now).

posted by Peter Greene