The Upside of Low Housing Starts

I'm a little bit confused about all the pessimism surrounding today's housing starts figures. Yes, they're low - but remember we're talking about starts here: people and businesses brave or foolhardy enough to start building brand-new homes in an economic climate of steadily-falling property prices, in the face of the existence of a huge glut of already-built unsold homes on the market. Yet the number of homes getting started in December alone was over 1 million, on an annualized basis.

The Commerce Department doesn't release raw numbers for this series, so it's unclear how many actual homes got started in December. (Update: Er, yes it does. 68,800 new homes were started in December, down from 112,400 a year previously.) We are told that the final-year number for 2007 as a whole came in at 1.35 million - which means that December (seasonally adjusted) came in at about 75% of the average for the year as a whole.

Atop most minds right now is the risk - and possible severity - of a 2008 recession. Housing construction is a significant component of GDP, and scaling back will not help the broader economy. But continuing to build in the face of the present housing overhang would only serve to weaken house prices further, which would hardly help the economy in the longer term. It seems to me that builders are sensible and even bordering on the optimistic here. And anybody worried about plunging house prices should be relieved that the number of new homes coming onto the market is going to be relatively low in 2008.