A number of dismal scientists and market strategists have been advising for some time that the real estate market was set to stabilize. It wasn’t poised to grow necessarily, but that was just fine as far as the broader economy was concerned. The prediction fit nicely with the idea that if real estate simply stopped being a drag on the GDP calculation, the second half of 2007 into early 2008 would look pretty good in terms of growth.
That may yet prove accurate. But after reading this morning’s news on housing starts for July, new doubts arise about the momentum of real estate’s correction and, by extension, GDP’s prospects in the second half.
The Census Bureau reported today that housing starts dropped again last month, falling 6% from June, on a seasonally adjusted annualized basis. More dramatically, July’s 1.381 million annualized starts are down 21% from a year ago, as our chart below shows. Permits issued for new private housing construction is also off sharply on a monthly and annual basis through July.
The housing starts and permits trends suggest that the pain continues. Until and if the numbers show some stability, there’s reason to expect more of the same, namely, declines. That may or may not be the right thing to do, but short of knowing the future, what else can a prudent investor to do these days?