Home Sales, Housing Starts, Building Permits Drop in 2007
Sales of new homes fell by 26 percent in 2007, the biggest drop since 1963, when record-keeping began, the U.S. Department of Commerce reported last month.
2007 was also the worst year for housing starts in 16 years and, perhaps, since the Great Depression. In December 2007, housing starts were 1.006 million units, compared with 996,000 units built in 1991, Commerce Department officials report. December 2007 was itself a terrible month for housing starts: They were down 14.2 percent from November, when starts were at 1.173 million units.
Both single family and multifamily housing starts fell during December 2007. Multifamily starts dropped precipitously by 40.3 percent, from 355,000 units to 212,000 units; single family starts fell 2.9 percent, from 812,000 units to 794,000 units, during the month.
In 2007, total housing starts were 1.354 million units, down 24.8 percent from the 2006 total of 1.801 million units. In 2007, multifamily starts fell to 308,000 units from 336,000 units, and single family starts fell to 1.046 million from 1.465 million units the year before.
In December 2007, sales of new homes fell 4.7 percent to an annualized rate of 604,000, the lowest amount since February 1995. Geographically, sales of new homes were down in most parts of the United States, with the biggest drop taking place in the country's southern and western regions. In the northeast, sales were slightly up from 2006.
The median price of a new home fell to $219,000 in 2007, a drop of 10.9 percent from 2006. In 2007, sales of previously owned homes fell by the largest amount in 25 years, according to Commerce Department figures. And the median price of those homes fell for the first time in 40 years.
The U.S. Commerce Department lowered its estimate for new home sales to 634,000 in 2008, from the total of 647,000 that it had predicted previously for the year.
In December 2007, total building permits stood at 1.068 million, a drop of 8.1 percent from 1.162 permits in November 2007. Total single family building permits dropped from 770,000 to 692,000, and total multifamily permits fell to 376,000 from 392,000.
For the entire year, total building permits dropped 25.2 percent, to 1.376 million from 1.839 permits in 2006. Multifamily permits fell from to 403,000 units from 461,000, and single family permits dropped to 973,000 units from 1.378 million in 2006.
Reasons for Decline
The trend throughout 2007 was for potential buyers to stay out of the market because they expected prices to drop further in 2008, says economist Ian Shepherdson of High Frequency Economics, a research group. The current unavailability of mortgages added to the decline, he notes.
Revised lending standards that were imposed in the wake of the subprime lending crisis make it more difficult than ever before to obtain a mortgage, he adds. But the House of Representatives approved an economic stimulus bill (H.R. 5140) on Jan. 30, 2007, that includes temporary increases in fund availability for government sponsored enterprises (GSEs) that are responsible for mortgage financing.
GSEs Fannie Mae and Freddie Mac home mortgage limits were raised so they would be 125 percent of area median home price or 175 percent of the regular limit, which is currently $417,000 for a one-family mortgage. Accordingly, the GSEs could purchase one-family loans as large as $729,750.
Many economists expect the pace of housing starts and home sales to pick up again during the summer of 2008, Shepherdson says.
Ian Shepherdson: Economist, High Frequency Economics; London, UK