Housing starts plunge to 6-year low

Two stories dominated the morning.
The IPO of the NY Mercantile Exchange (not so much to do with mortgages).
And the "Housing Start" numbers that were released around 7 our time.

Here's the crux:
Builders are scaling back, buyers are not honoring their contracts, and the housing slump is showing no signs of rebounding according to Toll Bros. and other builders.

This is a market correction from the builders.
Remember the I Love Lucy episode where she starts a job working in a candy factory.
The conveyor belt starts going along, everything is going fine, then it starts speeding up and she starts falling behind?

If Lucy could have slowed the belt down, she'd have no problems.
But that's what made it funny.
She couldn't slow it down, she couldn't adapt.

The Builders can adapt.
Although say it's a little too late, they are slowing down the conveyor belt to match the need. Supply and demand.

Conversely, Toyota also opened a new truck building plant in TX today.
They mentioned that all the parts suppliers are located right next to the plant.
"Ready Now" Inventory.
If you are building 1,000 truck a week and need 1,000 head gaskets for next week, wouldn't it be cool if the place you got those was next door?
You wouldn't need to have all those items under your roof until the day you needed them.

Builders can't do ready now, the building process is very long.
from buying the land, to environmental studies, to permits and plans, they just cannot do the "ready now".




From CNBC this morning:


October housing starts point to more trouble in the housing market. Nymex Holdings' IPO begins trading today.

Housing starts for October tumbled more than expected this morning, dropping to a seasonally adjusted annual pace of 1.49 million new homes, down 14.6% from September's 1.74 million pace -- the weakest level since July 2000.

Bloated inventories and weakening home sales contributed to the drop. Economists were looking for a 5.6% fall to a 1.67 million annual rate.

Home building permits fell for the ninth time in a row, dropping more than 6% to the lowest pace since December 1997. The drop in permits, which are often a measure of builder confidence in the real estate market, is a signal that housing starts could continue to fall.

Stock futures dropped on the news, after a week of strong gains. At 9:50 a.m. ET, the Dow Industrials gave back 13.29, falling to 12,292.05, after closing at a record high yesterday. The Nasdaq Composite lost 9.63, to 2,439.78, and the S&P 500 was down 2.50, to 1,396.26.

The sharp slowdown in housing this year stands in stark contrast to the past five years, when the lowest mortgage rates in four decades had powered a housing boom that pushed sales of both new and existing homes to five consecutive records.

The housing weakness trimmed a full percentage point off economic growth in the July-September quarter, when the economy expanded at a tepid 1.6 percent rate. Housing is expected to continue acting as a drag over the next year but analysts believe the adverse effects of falling sales and construction cutbacks will not be enough to pull the country into a recession.

However, other data released this week painted a healthier picture of the nation's housing sector -- indicating that the housing market may have hit bottom.

A private survey of U.S. homebuilders' sentiment ticked higher in November. The National Association of Homebuilders/Wells Fargo Housing Market Index on Thursday got a two-point bump to 33 points in November. The survey hit at 15-year low of 30 in September.

And on Wednesday, the Mortgage Bankers Association reported that applications for U.S. home mortgages rose last week to their highest level since January as falling interest rates encouraged more loan refinancing.