New home construction numbers were released today by the Commerce Department. February housing starts improved over the steep decline in January. However, just like we’ve seen over the past few months, there were mixed signals. Building permits which are an indicator of builder confidence declined. Permits have now declined 12 out of the past 13 months.
What does all this mean? There are a ton of houses currently on the market. The theory of supply and demand dictates that an over supply of houses will push prices down therefore cutting into the profit margins of the builders. With the shake-up we’ve seen in sub-prime lending, builders are afraid the demand will continue to decrease causing an even greater supply of houses on the market.
Hopefully a decrease in home construction will allow for the houses currently on the market to sell and decrease the supply of homes available. There will always be people entering the housing market and as long as there are not too many homes being built then supply and demand should stay in balance.