As I've pointed out in the past, the Commerce Department's monthly "new home sales" data are the subject of breathless reporting, even though the standard error makes them completely meaningless in many cases. Not so today's press release concerning new home construction.
This bit of ill news shows exactly how badly the bubble is bursting for homebuilders like Hovnanian Enterprises
Building permits for August 2007 dropped 24.5% (+/- 1.3%) from August 2006. Single-family home starts dropped 19.1% (+/- 6.5%) year over year. Home completions dropped 19% (+/-7.6%) from the year before. That should eventually be good news -- as it will finally throttle supply. How long it takes before we see a healthy equilibrium is anyone's guess.
From another angle, this looks very bad indeed: The U.S. economy has already begun grinding to a halt -- possibly owing to the direct and ripple effect of previous, smaller declines in the housing sector. Given how much the construction industry has been boosting the U.S. economy of late, those massive drops provide a hint of what kind of further economic slowdown we might expect.
Unfortunately, Helicopter Ben Bernanke's recent rate cut can't do much to fix that situation. There are still too many houses out there. More are coming to market as foreclosures spike. Cheaper money might help banks and restore confidence in other credit markets. It might grease the wheels of commerce in some sectors that have gotten overly gun-shy, but it won't persuade anyone to purchase rancid pools of mortgage loans. The days of bad mortgage lending are waning. Thus, we won't see a new wave of home-flippers to step in and soak up the excess housing.
Outside of housing, the economy looks OK. The multibillion-dollar question remains: Just how glued to housing is the overall U.S. economy? Can we avoid a recession without a bubblicious housing market? Or, how about this one: Is it just possible that we need a recession to bring things back to right?
At the time of publication, Seth Jayson, a top-10 CAPS player, had no positions in any company mentioned here. See his latest CAPS blog commentary here. View his stock holdings and Fool profile here. Fool rules are here.