The recent data that came out for February, 2007, that housing starts were up by 9 percent is wonderful news for the building community, but this will be the eye of the storm as building starts as a statistic will collapse in the 3rd quarter of 2007. And that is not all bad.
In the part of Atlanta I live in, we are fairly built out, but other parts such as South Fulton county are seeing huge developments going in. But these homes are not in the 200–400 thousand dollar range, they are 90 thousand to 125 thousand dollar starter homes. And they are built in a rapid fire method. And they are sold to renters who were qualifying with sub prime paper.
So what is the point, these homes have been the key numbers in housing starts. A million dollar home and a 90 thousand dollar home each count as a housing start. The million dollar home is worth 11 90 thousand dollar homes in housing costs, but in housing starts they are equals.
So when the bottom falls out of the low end market and these homes have no buyers since writing bad paper has ended, these developments will shut down starting new builds. And that is why the housing starts number will collapse, but not the real estate industry as the mid to top end will continue to go strong.
Confidence among U.S. builders retreated this month, however, according to the National Association of Home Builders/Wells Fargo Housing Market Index.
The national HMI slipped 3 points to 36, from February’s eight-month high of 39 points. (Fifty is the neutral level; higher levels indicate more builders see sales conditions as good than as poor.) In the Northeast, where confidence was highest, the HMI slipped 2 points to 41.
“Builders are uncertain about the consequences of tightening mortgage lending standards for their home sales down the line, and some are already seeing effects of the subprime shakeout … [But] The fundamentals of today’s housing market still are relatively strong,” said NAHB Chief Economist David Seiders. via Providence Business News.
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Starts were up 9% with a margin of error in the report of plus or minus 10%. In other words, it may not have gone up at all or may have declined. In any case, starts were down 28% from last year.
Interesting prediction. I keep waiting for starts to fall off the map. I'll keep my eye on qtr 3.
In the meantime, should we worry about liar loans? http://infohype.blogspot.com
I think i’ll have to agree with you. I think this subprime collapse will spread to alt-a and prime loans and lead the US into a recession.
I just posted a couple of rants on the same topic.