Housing starts reflect the industry’s woes

WASHINGTON – Housing construction is crawling out of its very deep hole, but no one expects it to reach
the heights hit before the housing bubble burst – at least not for a very long time.
The Commerce Department released its monthly report on housing starts Tuesday, saying they increased in
September by a modest 0.5 percent to an annual rate of 590,000 new homes and apartments. Applications
for new building permits, however, fell by 1.2 percent to an annual rate of 573,000 units.
Here are some questions and answers about the housing starts report and what it says about the state of
housing and the overall economy.
Q: What is a housing start?
A: The government counts a single-family home or multifamily dwelling such as an apartment building as
"started" once the builder begins excavation of the foundation. The starts for the month are
multiplied by 12 to get an annual rate. The figures are also seasonally adjusted to account for the fact
that more homes are built in the summer than the winter.
The report covers single-family homes, which make up more than four-fifths of the total, and multifamily
units, which make up the rest.
Q: What has been happening to housing starts?
A: They have been on a wild roller-coaster ride.
They surged into the stratosphere during the housing boom in the middle of the decade as cheap credit
propelled sales of both new and existing homes to record levels for five straight years. To meet demand,
builders ramped up production, pushing construction starts to 2.07 million units in 2005, close to the
all-time high for housing starts of 2.36 million new homes and apartments constructed in 1972.
Q: What happened after 2005?
A: Housing has been in a painful, prolonged slump. Housing starts hit an all-time low this past April of
479,000 units at an annual rate, 79 percent below the peak month during the boom years. Since April,
however, housing construction has staged a modest rebound, rising in four of the past five months,
including the 0.5 percent gain in September that was reported Tuesday.
Q: So is that good?
A: Well it is certainly better than the plunge in construction that occurred over the past 3½ years. The
downturn in housing, accompanied by rising mortgage defaults, helped trigger the worst financial
meltdown since the Great Depression and pushed the country into its longest recession in seven decades.

A rebound in housing is needed to help support overall economic growth – both directly, through the money
spent to build new homes, and indirectly, through the support increases in home sales provide to related
industries such as appliance makers and furniture stores.
Q: What do economists expect will happen in coming months?
A: The September housing starts report gave some mixed signals. Housing starts did rise but the report
showed that permits for new construction fell for the second month out of the past three. And analysts
closely follow building permits as a good indication of future activity.
Analysts suspect that the September permit decline was a payback from a jump in applications earlier in
the summer, as builders rushed to get projects started in time to take advantage of the government’s
$8,000 tax credit for first-time homebuyers. That program is scheduled to end Nov. 30.
Q: If the tax credit ends, what will happen to the rebound in housing?
A: Real estate agents and home builders are lobbying Congress and the Obama administration to extend the
program for another year. But many private economists believe the impact will be limited because they
think most people interested in the program have already taken advantage of it.