Housing starts: How low can they go?

At what point do home builders start jumping out the windows of their unsold condos?

Published October 17, 2007 2:54PM (EDT)

Remember a year or so ago, when the various economic indicators relevant to the housing sector would bounce up and down from month to month? In retrospect, the overall downward trend is obvious, but at the time, one was never quite sure whether a sudden uptick in housing starts or new home sales was an aberration, or a sign that the market was finally turning for the better.

Those days are long gone. As summer has turned into fall, the bad news has been relentless. This week is no exception. An index measuring home builder confidence dropped to an all-time low. Housing starts fell to a 14-year low, a whopping 31 percent drop from a year ago. And building permits were also down, exceeding economist expectations, and suggesting more bad news is to come.

That being said, I feel compelled to note that the vast majority of the decline in housing starts can be attributed to a huge plunge in the number of multi-family units on which ground was broken, and as we learned last year, multi-family unit data is notoriously volatile. So this particular plummet may not be as dazzling as it seems.

Two other notes:

In Slate, Daniel Gross covers some of the same ground as my last post exploring the implications of Wall Street's super-conduit rescue plan. (Felix Salmon, by the way, says nobody is calling it a "super conduit" anymore; instead, it has morphed into "The Entity," but that's too Star Trekian even for me.) Gross does a great job of connecting the dots that point out how the Bush administration expressed little concern about the housing bust and subprime mortgage meltdown until "Paulson's pals" on Wall Street "started whimpering." Good stuff.

And finally, it has become routine for a minority of readers to pooh-pooh the possibility that the housing bust may send the U.S. economy into recession, because, hey, business cycles happen.

This is true. A recession is not the end of the world. However, a recession during a presidential election year is still a major earthquake. Whether justifiably or not, bad economic news tends to get blamed on whoever controls the White House. In a very real sense, the next batch of Supreme Court Justice nominations could hinge on how far home prices fall in, for example, Southern California.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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