Housing Starts Plummet

"The Census Bureau reported a sharp drop in housing starts in November from a downwardly-revised October rate. The 625,000 annual rate of construction reported for November is 24.8 percent below the September rate. It is 47.0 percent below the November 2007 rate and it is 70.9 percent below the rate in November of 2005 at the peak of the building boom. In fact, the start reported for November is lower than any rate reported for the last fifty years.

The November drop hit all regions of the country, but the Northeast saw the sharpest downturn. Starts fell by 34.6 percent in the region and are now down by 60.2 percent from year ago levels. This seems to be a case where the Northeast is catching up with the rest of the country, since starts had previously fallen somewhat less in the region. It is worth noting that the absolute levels of starts in the Northeast were far lower than in the other three regions, so this drop has much impact on the national economy.

This plunge in starts is a necessary part of the adjustment process in the housing market. There is no way to eliminate the vast inventory of unsold new and existing homes without a sharp slowing in construction. However, the drop in the last two months suggests that the housing market is in a qualitatively different state than it had been even three months ago."