By now the routine is familiar–and increasingly painful. The government updates the state of the housing market and a bevy of negative numbers fly by. Today’s news on this front is, alas, more of the same, reminding that the primary source of the current economic and financial ills is still correcting and therefore throwing off bearish shock waves in all directions.
New housing starts dropped 6.3% in September from the previous month, the Census Bureau reports. That’s a lesser decline than August’s 8% drop, although as our chart below reminds that’s cold comfort given the persistent declines that have been battering this sector almost nonstop since early 2006.
It’s no better for new housing permits issued, and that casts a pall on the future. As our second graph below shows, this forward-looking measure remains under enormous strain too, virtually assuring that housing construction and related activity will continue to shrink for the foreseeable future. The 8.3% drop last month in new permits is steep and only slightly below August’s 8.5% tumble, suggesting that the negative momentum has still got its foot on the industry’s neck.
The best we can hope for at the moment is that a bottom in the housing market is near. Forget about a rebound–that’s probably a year or two off at the earliest. At this point a material slowdown if not an end to the bleeding is housing is priority one. It’s unclear what policies will bring that about other than to let the excess in the housing market unwind naturally. Suffice to say, government intervention with an eye on moderating the pain will be ongoing on several fronts, but getting some traction relief remains a trial-and-error effort still.
Injecting more liquidity into the system is, of course, at the center of the best laid plans. And that includes lowering interest rates further. That’s looking like a done deal…again. The November ’08 Fed funds futures contract is currently priced in anticipation for at least a 25-basis-point cut in rates and quite possibly a 50-basis-point cut, which would bring Fed funds down to 1%.
Helpful, perhaps, but the aid is increasingly marginal. But helping on the margins is all that’s left. Maybe the collective actions of marginal changes can bring about a floor to the housing market. Another productive development comes from the energy markets, where dramatic price declines are now doing their part to give consumers yet another source of relief. The November ’08 contract for crude oil in New York is currently about $70, or half the level as recently as this past July.
It’s anyone’s guess when all the various fiscal and financial stimuli, from government bailouts to falling prices on Main Street, will bring some stability to the housing market. No doubt more action is coming if the patient doesn’t soon show signs of at least stabilizing. It’s likely the brighter days will sneak up on us when we least expect it, i.e., at the point of maximum pessimism.
Meantime, negative momentum still rules, and given the size of the previous housing bubble it’s probably a safe bet that the unwinding still has a ways to go.