Home Construction Drops 25 Percent - Largest Drop in 27 Years

As a business owner friend said in an e-mail to me today, "we are seeing signs of a real shit storm coming" in the U.S. economy, even as most of the GOP presidential candidates continue to act as if the economy is not too bad. This story (http://www.washingtonpost.com/wp-dyn/content/article/2008/01/17/AR2008011700248.html) from the Washington Post about the huge drop in home construction adds to the dark picture. Whining and hand wringing will not fix the problem and I hope someone in the federal government wakes the Hell up soon. Meanwhile, fasten your financial seat belt - there is real turbulence ahead. Here are some highlights:

WASHINGTON -- The prolonged slump in housing pushed construction of new homes in 2007 down by the largest amount in 27 years with the expectation that the downturn has further to go. The Commerce Department reported Thursday that construction was started on 1.353 million new homes and apartments last year, down 24.8 percent from 2006. It was the second biggest annual decline on record, exceeded only by a 26 percent plunge in 1980, a period when the Federal Reserve was pushing interest rates to post-World War II records in an effort to combat an entrenched inflation problem.

Many economists believe that the current slump in housing will rival the dive in the late 1970s and early 1980s when housing construction fell for four straight years before beginning to recover after the severe 1981-82 recession. The drop in construction in December was bigger than economists had been expecting and reflected weakness in all parts of the country. Housing construction fell by 30.8 percent in the Midwest and was down 25.8 percent in the Northeast and 19.6 percent in the West. The decline in the South was a smaller 3.3 percent. Economists said the weakness showed that the housing correction was getting worse since the turmoil in financial markets hit in August.

Last week, KB Home, one of the nation's largest home builders, said losses in the fourth quarter had ballooned to more than $770 million. Many economists believe the housing sector will remain weak through this year before starting to stage a rebound in 2009.