Housing Starts: Best and Worst Years

Housing Starts: Best and Worst Years

Recent news out of the U.S. Census Bureau seemed anything but positive—housing starts, a vital indicator of the state of the economy, slipped to a six-year low in October. The stock market dipped on the news, and economists handed in their gloomy predictions: This was the beginning of a long overdue correction that could continue well into 2007.

History, however, demonstrates that times have been worse. Total starts of construction of privately owned homes dropped to a seasonally adjusted annual rate of 1.486 million in October, 2006, down 14.6% from the revised September rate of 1.74 million. As bad as that sounds, it was nowhere near the levels of the worst months for housing starts in the past 47 years. The historical monthly median—based on data dating back to 1959—is 1.529 million, just 2.8% higher than the most recent number.

Moreover, the past indicates that this downturn in home construction is, for lack of a better word, constructive. "It's inevitable and good," says David Seiders, chief economist of the National Association of Home Builders. "It would have been better not to have the binge, but we did, and now [homebuilders] are doing exactly what they should be doing."

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