New Home Construction - Numbers Down

Today I read an article on CNNMoney.com that spoke of the current numbers that are associated with the current construction of new homes.  Overall, the numbers are down, and down more than anyone predicted.  According to the article:

Homebuilders began construction at an annual rate of 529,000 new homes during the month, 10.6% below the revised September rate of 592,000 and 30.7% below the 763,000 rate during October 2008. It was the lowest level of housing starts since April, when the annual rate was 479,000.

A panel of industry observers compiled by Briefing.com had forecast housing starts of 600,000 during the month. It was the second month in a row of dashed housing start expectations.

"The numbers stink," said real estate analyst Mike Larson of Weiss Research. "They're negative across the board."

That weakness included the number of building permits issued in October, which fell to seasonally adjusted annual rate of 552,000. That was 4% below the revised September rate of 575,000 and 24.3% below the October 2008 estimate of 729,000.

The slowdown in construction means that there are many fewer new homes for sale, about 251,000 in all. That's the smallest inventory since 1983, according to Larson.

"The new home market, which was dramatically oversupplied during the boom, is now dramatically undersupplied," he said.

I am torn on whether this is good or bad. I know for the short term, this is a bad thing. Home building produces a lot of jobs and when building is up, usually the economy follows. However, I see the last sentence in the quote and I see that as a positive. We have been dealing with falling home prices across the board, and the only way I see that changing is if we don't have the inventory. It's economics 101, when supply is down, prices go up! So, if we want home values to start increasing, we need to get inventory down. If there aren't new homes to be purchased, people will have to buy existing homes.

However, I hope this isn't a long lasting trend. I would like to see new homes being built. I have seen a bit of a gain locally, but I don't have the numbers. I would also think part of the problem with new home construction is the instability to get construction financing. I've known several builders that have tried to get projects up and running and they simply can't get the money to do it. So, until banks start to loosen their lending guidelines on new construction, I think this will keep its slow recovery.

Time will tell, but in the long term, I don't think this is a terrible thing.