Declines in housing starts and building permits across the country were announced by the Commerce Department this morning. New construction in August failed to be as strong as many builders and economists expected, and the declines led many to predict the Federal Reserve Board will not raise interest rates when it meets tomorrow.

The Commerce Department released these data (view PDF):

  • Housing starts were 6 percent lower in August than in the previous month, and 19.8 percent lower than in August 2005. In total, there were 1.67 million starts – which is when builders break ground on new home.
  • Building permits were at 1.72 million, 2.3 percent lower than July’s permits, and 21.9 percent lower in a year-on-year comparison.

DowJones MarketWatch reports that the number of housing starts is the lowest since April 2003, and that the building permits have fallen for seven consecutive months.

Some analysis from the economists asked about the data by MarketWatch:

Housing is falling faster than the Fed expected, putting the “soft landing” scenario at risk, said Young Kim, an economist for Stone & McCarthy Research.

“As housing continues to stumble, the Fed will have to keep its eyes open to ensure that the ‘gradual cooling’ continues,” said Benjamin Reitzes, an economist for BMO Nesbitt Burns. …

Other analysts were sanguine. “We’ll flatten out sooner rather than later,” said Bob Walters, chief economist for Quicken Loans. “It’s a buyers’ market. When things become cheap, people will take action.”


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