New Homes Coming

More green shoots for the housing markets: Builders started digging the foundations of new homes in November at a seasonally-adjusted annual rate of 574,000 per year, according to the U.S. Census.

That's up 9 percent from the annualized rate of 527,000 starts for October, a slow and unusually rainy month, and closer to the annualized rates over the summer that peaked at 593,000 in July.

The mini-recovery in home building should continue. Building permits, a sign of future construction, climbed to the highest level in a year.

So why is this good news? Builders are starting work on new houses while more than half a million homes are already listed for sale. With whole subdivisions standing empty on the outskirts of sprawling towns like Phoenix, shouldn't we finish selling the houses we have before we build new ones?Fortunately, it's a safe bet most of these new homes aren't going up next to empty houses languishing on the market. Most home builders don't start digging until they have a buyer. So the recovery in housing starts from the summer through November probably reflects real demand for houses in towns and neighborhoods that weren't overbuilt during the boom.

The latest data on housing starts is another clue to a widening split in the housing market. Some neighborhoods seem to be stabilizing while in other subdivisions the streets are lined with empty, foreclosed homes. Foreclosure experts locate most of these empty homes in sprawl towns in overbuilt states such as Florida, California, Nevada, and Arizona.

With prices still falling in many overbuilt places, it shouldn't be a surprise that housing starts are still less than half their usual strength. Since the Census started counting in 1991, buildings have generally started work on between 1 and 2 million houses a year, peaking in 2005 at more than 2 million. But last year, the number of starts dropped below a million for the first time and this year builders seem on track to begin work on a little more than half a million.

In another sign of the mixed market signals, home builder sentiment fell by a percentage point in December, to 16, on unemployment concerns. A score of greater than 50 means more builders have a positive outlook than not.
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