New Home Construction Statistics Plunge

Housing starts and building permits are two separate statistics tracked by the U.S. Department of Commerce as part of overall economic monitoring. This week, first quarter 2008 statistics for both were reported and both were down substantially as a national aggregate. In the City of Flagstaff, first quarter permits were down at an even greater percentage, from a total of 39 permits in the first quarter of 2007 to just 19 in the first quarter of this year.

The Wall Street Journal reported this afternoon that “the Commerce Department said March housing starts fell to an annual rate of 947,000, down 36.5% from a year earlier. The last time housing starts fell below the one-million mark was in May 1991, just after the end of a recession. Building permits for new homes fell 5.8% to 927,000, a sign of more construction declines to come.”

The decline in construction is a necessary prerequisite to improvement in home prices since most real estate markets, including the Flagstaff homes market, has a huge oversupply of homes for sale. Any new homes coming on the market at this point add to excessive inventory that must decline before prices can begin to recover and rise again.

In Flagstaff, new home construction plunged in 2007 compared with 2006 and that trend has obviously continued in so far in 2008. While in prior years, the only hold on Flagstaff expansion was the lack of available land, now the lack of demand has squelched new home building. Still, in absolute numbers, and in price loss, the Flagstaff market has suffered fewer losses than in many parts of the country and has less inventory to sell than in other areas.