Housing Starts Impacted by Distressed Inventory

Housing Starts Impacted by Distressed Inventory


Housing starts declined 8.5 percent from December to January but remain 24 percent above last year’s rates, according to recent data from the Census Bureau and HUD.

Capital Economics points out in a report that the recent decline is largely driven by the multifamily sector, while single-family starts actually rose 0.8 percent over the month.

The general upward trend in housing starts is tied to recent declines in distressed inventory, according to Capital Economics.

“[H]omebuilders are starting to benefit from the dwindling supplies of deeply discounted distressed homes, which for a while were next to impossible for builders to compete with,” the analytics firm stated.

Foreclosure inventory declined 19.5 percent year-over-year in December, according to CoreLogic, and RealtyTrac recently reported a 79-month low in foreclosure starts for the month of January.

At a regional level, housing starts rose in the South and West while declining in the Midwest and Northeast over the month of December.

The Midwest experienced a 98 percent decline in multifamily starts, which Capital Economics labeled “suspicious to say the least.” The firm suggests “there is considerable scope for upward revisions in the future.”

The Northeast, however, having been “hurt by high foreclosure rates and a slowdown in population growth, is struggling,” according to IHS Global Insight economist Patrick Newport.

While “housing starts numbers are the headline-grabbing numbers,” Newport insists “the permits matter more because they are forward-looking, are not affected as much by weather, are better measured, and are subject to smaller revisions than the starts.”

While single-family housing permits increased 1.9 percent nationally to their highest level since June 2008, single-family permits in the Northeast actually declined. Single-family permits in the Northeast fell by 2,000 to 46,000, according to Census Bureau and HUD data.

Newport points out that single-family permits made up just 42 percent of all permits in the Northeast, which is the second-lowest share the sector has claimed on record.

Several Northeastern states rank at the top of the list of states with the largest percentage of foreclosure inventory, according to CoreLogic’s recent report.

New Jersey, New York, Maine, Connecticut, and Maryland all ranked in the top 10, further suggesting Newport’s implication that the Northeast’s high foreclosure rates could be weighing on the region’s housing starts.

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