The stock market suffered a sudden drop in the early trading this morning due to  data released by The Commerce Department. The department announced housing starts fell 12.8 percent to a seasonally adjusted annual rate of 458,000 unites, the lowest on the records dating back to 1959.

New building permits, which projects a sense of future construction, dropped 3.3percent to 494,000 units, the lowest since records started in 1960.

For the amateur investors who do not devote time to consider a wide range of data and news may see the above announcement as catastrophic. The seasoned investors who follow and analyze current market data from all around would simply understand the announcement was within expectation and not a cause of great alarm.

The well informed investors are well aware that although the US real estate market may be showing a faint heartbeat for recovery, but the excess inventory in unsold homes of over 2.5 million units and the ever increasing number of foreclosure property would discourage cash strapped home builders  from attempting to build more new homes in the foreseeable future. Hence the drop in decline in New Home Permits is logically.

This graph from Freddie Mac clearly illustrates the volume of excess unsold homes alone would take more than several months for this weak market to digest. Government incentives and slightly improved mortgage liquidity will take its time to deliver any effect on this never been before crisis.  

This entry was posted on Tuesday, May 19th, 2009 at 9:49 pm and is filed under US Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.