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Is home construction activity really up?

Posted by: Prashant Gopal on May 16, 2008

Let me quickly dispel any notion that the 8.2% surge in housing starts in April reported by the Commerce Department on May 16 was a positive sign for real estate, or that it has much significance at all.

The rise was fueled by a 40.5% leap in construction starts on multifamily homes of five or more units – a monthly statistic that is notoriously volatile (April’s increase followed a 35% decrease in March and a 24% increase in February).

So let’s focus on the important number. Single-family home starts dropped 1.7% to a seasonally adjusted 692,000 annual rate, another sign that builders are holding back on new projects while they unload unsold homes and wait for a rebound.

Still, the April drop in single-family home starts was the smallest decline since June 2007 when starts fell 0.9%. Single-family home starts decreased 7.7% in November and the rate of decline has been falling ever since. The last time single-family starts increased was in April 2007.

Reader Comments


May 19, 2008 1:54 AM

The published number of unsold homes in MLS(a real estate listing service in California)does not tell the whole story behind the glut of unsold homes. Tens of thousands of homeowners have pulled their homes off the market to avoid depressing the steady declining market further. They are just waiting for the right time to unload their pink elephants. They are hoping that eventually the market will clear the unsold inventory and thereafter they will re-list their pink elephant demanding a superior price. This is Deja vu wishful thinking. Just as the dreamers had hoped for a better recovery price after the Tulip speculation collapse, so too the speculators of the Dot-com scam. During this period of the post real estate scam, wishful-thinkers refused to face the reality that they had fallen for the biggest real estate scam in the history of USA. Like the Tulip and Dot-com scam, the real estate business will take at least a decade to recover to its pre-scam level. The cost of taxes, maintenance, insurance, and the cost of lost of opportunity will eventually kill off the wishful thinkers before they can even collect their social security in the next ten years. Like the losers at Las Vegas, these real estate holders refuse to leave the table, still hoping for the next "Big" hand, or the next jack-pot "Hit." Eventually, the morning sun comes up and the gambling table has closed. Solemnity sets in. They find themselves empty and spent, having lost their entire savings and even there soul. The days of reckoning has begun. Just ask those folks at BearnStearn.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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