Housing Starts Bounce Back, but Permits Falter
The Commerce Department reported Tuesday that housing starts surged in September to a 610,000 unit rate, its highest rate since April, and on the heels of the best builder confidence numbers in four months. New building permits, however, dipped by almost 6 percent, which isn't exactly encouraging for starts going forward. What do these statistics reveal about the state of the housing market? Diane Swonk gives us her take.
--Nelson Wang
Still A Long Road Ahead
The level of housing activity remains extremely low, given how far we are into the expansion. We have a long way to go just to restore starts to a level consistent with household formation, let alone tap the pent-up demand that is building due to record low rates and an exceedingly high level of affordability. In some areas, rents are now exceeding marginal ownership costs, which usually means that ownership is preferable to renting. Buyers are finding, however, that they are unable to meet the higher hurdles to getting a mortgage that are being erected in what is still a very uncertain environment.
Impact of Foreclosure Mess
The recent troubles with foreclosures only further complicates the situation, as it is making banks even more hesitant to underwrite new mortgages. The risk is that we see another setback in housing before the year is over if the foreclosure situation is not resolved quickly.
The Fed's Strategy
The rebound in starts is encouraging and critical if we hope to see a re-acceleration in growth. It is even more critical to the outlook for employment, as construction been among the hardest hit sectors by the crisis. The road ahead remains rocky, and without a lot of sign posts to guide us. Hope that the Fed has some impact with the efforts to ease further in November. The fact that other central banks are joining them may help to magnify the positive effects associated with additional easing, even if they are small.
Diane Swonk, chief economist at Mesirow Financial, talks to CBS MoneyWatch twice a week about the day's top economic news and developments. Her responses are edited for clarity and length.