Housing Starts Plunge 30.6%... A GOOD Thing for the Market!

The Commerce Department recently released the latest Housing Starts data. It was not pretty (for builders), but it reflects a glimmer of hope for the real estate market recovery.

Construction of single-family houses in April dropped to the lowest level in 17 years. Builders broke ground on 692,000 single units at an annual rate, the fewest since January 1991.

Multifamily units -- Condos, townhouses, and apartments -- rebounded for the month. Total housing starts were up 8.2% since last month, but plummeted 30.6% below the level of construction in April 2007.

The Wall Street Journal reported:

Builders have been reluctant to build because demand for new homes has plunged and the supply of unsold property remained high. The latest data show new-home sales, for March, were down 36.6% from a year earlier. On Thursday, the National Association of Home Builders reported its index for sales of new, single-family homes slipped to 19 in May from 20. The gauge is based on a survey of builders asked about prospects for sales.

Given the huge inventory overhang, weak housing starts is (perversely) a positive for the housing market. As the unsold inventories start to shrink, prices will stabilize as demand catches up.