December Housing Starts Fall 4% in Weak End to Awful Year

It was a year the nation's builders and realtors would probably prefer to forget: Housing starts fell 4% in December, the U.S. Commerce Department announced Wednesday, ending the worst year for housing in the United States since the end of World War II.Starts unexpectedly fell for the month to a 557,000 annualized rate, and for 2009 starts plummeted 39%, with an estimated 554,000 homes started -- the lowest total since the Commerce Department starting keeping records for housing starts.

A Bloomberg News economists' survey had expected housing starts to total a 579,000 annualized rate in December, after attaining a revised 580,000 pace in November. Housing starts totaled a 524,000 annual pace in October, and a 586,000 annual pace in September. They hit a cycle-low of 479,000 in April.

A Terrible 2009

Further, starts of single-family homes plunged 29% to a record-low 444,000 in 2009. In addition, the number of homes completed also hit a record-low in 2009, falling 29% to 796,000.

However, December's housing data did contain a couple of bright spots. Building permits jumped 10.9% to a seasonally adjusted annual rate of 653,000. Single-family home building permits surged 8.3% to an annual rate of 508,000.

Economists follow the housing start statistic because of the large role residential real estate has played historically in the U.S. economy. Housing affects commerce in companion sectors, such as furniture, appliances, insurance, and landscaping, among others. Hence, a sustained increase in housing starts usually puts upward pressure on U.S. GDP.

Economists also caution that monthly housing start data contains a margin of error and revisions can be large. In addition, housing analysts underscore that it can take three to five months for a housing trend to form, and retrenchments are possible.

Housing Analysis

There's no way to sugar-coat it: 2009 was another difficult year for the U.S. housing sector, with massive declines in housing starts, 39%, and homes completed, 29%, following excesses that occurred during the housing bubble from 2003 to 2007.

Further, the adjustment period probably is not over: Single-family housing starts of homes, condos, and apartments have been statistically flat over the past 12 months, and given high inventories and the likely, continuing stream of foreclosed homes for 2010, home builders undoubtedly will be reluctant to increase their construction pace, at least for the first half of 2010.

Given this news, the extension through April 30 of the federal government's $8,000/$6,500 tax credit for first-time/existing home buyers is prudent: Housing needs demand from all potential sources to increase sales, inventories, and, ultimately, housing starts -- a key factor component of U.S. GDP growth.
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