October's drop in new-home construction is good news for the real estate market.
The stock market took a tumble yesterday because of investor reaction to what is being called a surprising drop in housing starts. The Commerce Department said October new home construction fell 10.6 percent from the previous month, dropping to a six-month low.
With apologies to those in the construction business, this drop is good news for the trying-to-recover real estate market. The fact is, inventory of homes for sale and rents are too high and the last thing we need is for new construction to pile on more vacancies.
Some economy watchers were likely getting too caught up in recent “good” real estate news — falling inventories of properties for sale, the extension of the home buyer tax credit and a slight uptick in building permits, among others.
Housing starts overall have fallen 30.7 percent from October 2008. But single-family starts have fallen 6.8 percent, while multi-family units (34.6 percent) and apartments with five or more units (33.3 percent) accounted for more than two-thirds of the fall.
Fewer renters
Most landlords will say those numbers make sense because it’s become more difficult to find tenants. On the surface, it would seem that there should be more people renting because of foreclosures and short sales. The theory is that if people aren’t owners, they’re renters.
Not in this economy. In California, where I live, unemployment has hit 12 percent. This doesn’t include the many more who are employed but making significantly less.
What we’re seeing is people moving in with family members or friends to cut housing costs. Even people who were renting and can’t afford what they were paying are sharing housing.
In my town, I’ve seen the number of rental houses sitting on the market increase dramatically since the summer and prices have dropped 10 to 15 percent for single-family rentals.
The fall in housing starts really just tells us what most already know. Real estate isn’t ready for more inventory and may not be for quite a few more months. —Rick Hazeltine