Nationwide Housing Starts Up, Permits Down

Home building activity rebounded from a six-year low in November, but builders’ applications for future projects fell to the lowest level in nine years, the government said Tuesday in a report suggesting the worst is not over for the housing market.

Builders started work on new homes at an annual pace of 1.59 million in November, up from the 1.49 million rate in October, which had been the lowest reading since July 2000, the Commerce Department reported. The basis for this construction could be an uptick on national and Florida home mortgage demand.

Building permits, which are seen as a measure of builders’ confidence in the market, fell to an annual rate of 1.51 million from a 1.55 million pace in October. That was the lowest building permit level since December 1997, according to government figures.

While housing starts rebounded last month, they’re still weak compared to the building boom seen over much of the past decade. The November reading was still the second-lowest in the last five years, behind only the October figure.

This means that homebuilding remains under pressure, according to experts, largely thanks to a glut of new and existing homes on the market. Buyers are therefore faced with an ideal time to take out a Florida mortgage and receive a reasonable price on a piece of property.

“The market in general is heading downward,” said Dean Baker, co-director for the Center for Economic and Policy Research, who has long maintained that the run-up in prices and building in recent years has caused a market bubble. “There is a very big supply of new homes. Vacancy rates for owner-occupied units are at a record high. You have tremendous oversupply.”

Housing market future

The slide in permits is a clear indication of the shape of things to come, said David Seiders, chief economist for the National Association of Home Builders, who believes that housing starts won’t bottom out until the first quarter of 2007.

“The persistent downslide in permits points towards further erosion [of housing starts,]” he projected.

In addition, Seiders said the “backlog of permits can be used by builders when the weather turns surprisingly good.”

Unseasonably warm weather in the fall and winter is often a strong catalyst for home construction, but analysts said it’s unclear just how important that is in 2006. The backlog in inventory is a much bigger concern, according to analysts.

William Wheaton, research director and economics professor for the Massachusetts Institute of Technology Center for Real Estate, is even more bearish going forward and said the decline will continue for years, not months.

“I see a slowdown in this industry for at least the next two or three years, and I don’t think permits have reached the bottom,” said Wheaton, who agreed with other analysts in saying that oversupply is to blame.

It’s hopeful that low Florida home loan rates will assist lower-income borrowers, creating more purchasing activity and optimism down the line for this industry.