Money

Surprise! October Housing Starts Collapse

By Ilyce Glink

Updated on: December 3, 2009 / 1:03 PM EST / MoneyWatch

Guess the economists are wrong again.

According to this morning's Wall Street Journal, economists estimated that U.S. housing starts rose to an annualized pace of 600,000 units from 590,000 in September.

Wouldn't that be nice.

Instead, housing starts collapsed according to the latest government figures. According to the Census Bureau and U.S. Department of Housing and Urban Development, U.S. housing starts in October fell 10.6 percent from September, and were down 30.7 percent below the October 2008 level.

Building permits declined 4 percent from the revised September numbers, and more than 24 percent from a year ago.

But hey - the recession is over. Just ask Wall Street, where the stock market is up around 70 percent from the low on March 9, 2009. Is the economy 70 percent better than it was? Are you feeling 70 percent better about your own financial prospects? Hardly. And even if you argue that the stock market projects where the economy will be 9 months to a year from now, are we really going to be 70 percent better at the end of 2010?

It's difficult to imagine that with unemployment rising higher than almost any economist predicted (let alone the Obama administration's projections) that everything is going to be fine anytime soon.

How can it be, with millions of Americans delinquent in their mortgage payments, and millions more afraid they're going to lose their jobs?

According to the Mark Gongloff's "Ahead of the Tape" column, within six months after hitting the last steep housing decline trough, the annualized pace of housing starts was back to one million units. If the trough of the current housing crisis was in March, when the stock market hit its lows, we should be at one million units right about now.

Only we're at half that number.

What does this tell us? I think it tells us that if the government hadn't extended and expanded the home buyer tax credit, the rest of the housing market would be collapsing just as the new home market has collapsed.

Without knowing that the $8,000 first-time home buyer tax credit would be extended beyond November 30, 2009, home buyers weren't going to risk putting in a contract for a new construction home that might not be finished on time. Since you have to be able to live in the home on the closing date in order to qualify for the tax credit, and home builders are notorious for delivering new homes late, consumers decided to shop elsewhere.

Now that the $8,000 tax credit has been extended until June 30, 2010, and millions of trade-up buyers can qualify for a $6,500 tax credit, we should see the new construction starts number improve somewhat through the winter.

But it goes back to what I've been saying: The U.S. housing market is on government life support and is nowhere near ready to stand on its own.

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask. She blogs about money and real estate at ThinkGlink.com.

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