by Calculated Risk on 7/17/2008 01:29:00 PM

First, the reason overall starts were higher in June was because a pending change in the building code in New York temporarily boosted multi-family starts. See: New York Anomaly Lifts Housing Starts

“All the increase in headline starts and permits reflects a rush to begin multi-family construction projects ahead of a change in the N.Y.C. building code.”
Ian Shepherdson, an economist at High Frequency Economics

Next month multi-family starts will probably decline. As I noted this morning, single family starts are at the lowest level since 1991.

Also important is that single family completions will probably decline another 20% over the next 6 months.

Click on graph for larger image in new window.

This graph compares single family housing starts (shifted 6 months into the future) with single family completions. This suggests that unless housing starts rebound quickly (like in '91), completions will probably fall to under 700 thousand by the end of 2008.

This decline in completions will impact residential construction employment and suggests a further significant decline in residential investment.

So will starts rebound? The answer is probably in the home builder confidence index.

This is the builder confidence index from the NAHB. In 1991, the housing bottom looked like a "V" for both housing starts and builder confidence.

This time builder confidence is staying at record lows suggesting there will be no rebound this year - and completions, residential investment and residential construction employment will continue to decline sharply.

This is exactly what we expect based on supply and demand too. There is too much supply of existing homes, especially distressed supply like foreclosures and short sales,and too little demand with tighter lending standards, for any rebound in new home sales and single family starts this year.