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Overall
construction spending in the United States decreased by a seasonally adjusted and annualized rate (SAAR) of 2.5 percent during December, to $787.9 billion. Private residential construction took the biggest hit, falling 4.1 percent.
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Total
housing starts fell 4.3 percent in December, to 529,000 units SAAR. For 2010 as a whole, builders began work on 586,000 units, the second fewest number of homes since the Census Bureau began keeping records; 2009 was the low point at 554,000.
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As we observed last month, there seems to be a “natural” or “background” rate of 500,000 total units, below which starts have fallen only twice during the past two years.
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Single-family starts essentially “flat-lined” around 440,000 after the federal homebuyer tax credit expired in April, while multi-family starts gradually eroded on a trend line basis.
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December’s 17.5 percent increase in
new-home sales was one of the bright spots for the month. The falloff in starts and pickup in sales caused the ratio of starts to sales to extend its decline for a second month.
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Because sales rose much more dramatically than did completions, the inventory of new homes dropped in both absolute and months-of-inventory terms. Inventory stood at 190,000 units (down from 195,000 in November) and 6.9 months (down from 8.4 months).
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Existing home sales also rose in November -- particularly on a percentage basis, returning to levels comparable to early 2009. Nonetheless, the jump in new homes sales pushed that sector’s proportion of total sales up slightly.
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Although existing home prices have been trending downward since July, they have not returned to the lows seen in early 2009 and again in early 2010. Nevertheless, the National Association of Realtors’ (NAR) December
housing affordability index remained near its all-time high set in November. Of course, the median home price is not the only factor influencing affordability; mortgage rates and family incomes are also important variables in that calculation. Falling home prices are a two-edged sword: While they make housing purchases more affordable, in a perverse way they also discourage those purchases: Why buy a home if there is a high likelihood that continued price erosion will quickly wipe out whatever equity the buyer has in the home?
As if to drive home that point, the seasonally adjusted
S&P/Case-Shiller home price indices retreated almost across the board in October. Only Washington, D.C. and San Diego saw modest advances relative to October. Most metropolitan statistical areas (MSA) have seen prices erode on a year-over-year basis as well.
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“With these numbers more analysts will be calling for a double-dip in home prices,” said David Blizter, chair of the Index Committee at Standard & Poor's. “ Let’s take a moment to define a double-dip as seeing the 10- and 20-City Composites set new post-peak lows. The series are now only 4.8 percent and 3.3 percent above their April 2009 lows, suggesting that a double-dip could be confirmed before Spring.”
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