Housing starts - the number of new, privately-owned homes under construction - are viewed as a leading indicator, projecting the future direction of the economy. These days, analysts are looking for any indication that the real estate market is improving, but the most recent report suggests that a national rebound just isn't in the cards, and that the Midwest and Northeast are facing the worst declines.

The latest report released January 20 states that housing starts fell in December to 557,000 from the prior month's 580,000. The 4% slide was led by a 19% decline in activity in the Northeast part of the country and an 18.5% drop in the Midwest. Economists blamed bad weather and high unemployment for these steep drops. (For background reading on this indicator, see Economic Indicators: Housing Starts.)

A Look at the Trends
A look at the numbers over the past four months shows the tough times these two hard-hit regions are suffering; overall, single-family starts in the Northeast have slid lower every month. The Midwest moved lower each month for the quarter as well, but at a milder rate. The South and West meandered up and down.

For the year, from December 2008 to December 2009, single-family starts in the Northeast plummeted 27.5%. The Midwest, South and West rose 30%, 23.3%, and 15% respectively. The nation ended the year basically flat, as the 0.2% gain could easily be dismissed by the near 10% margin of error in the survey.

New Privately-Owned Housing Units Started

Zone U.S. Northeast Midwest South West
Structures Started Total / 1 Unit Tota l/ 1 Unit Total / 1 Unit Total / 1 Unit Total / 1 Unit
December (2008) 556 / 393 63 / 51 76 / 60 283 / 202 134 / 80
September 586 / 508 66 / 51 104 / 84 298 / 272 118 / 101
October 524 / 471 54 / 46 99 / 81 265 / 250 106 / 94
November 580 / 490 63 / 44 108 / 79 300 / 265 109 / 102
December 557 / 465 51 / 37 88 / 78 310 / 249 108 / 92
% Change -4 / -6.9 -19 / -15.9 -18.5 / -1.3 3.3 / -6 -0.9 / -9.8

Unfortunately, the difficulties in the Northeast are likely to linger. The unemployment rates in New York, Pennsylvania, New Jersey, Massachusetts and Rhode Island are all at or above 9%, with New Jersey's rate topping 10% and Rhode Island at 12.9% - the third-highest rate in the nation. The high-profile failure of the 56-building, 11,000-unit PeterCooperVillage and Stuyvesant Town Manhattan apartment complex this week highlights the area's woes. Investors bought the complex in 2006 envisioning rent increases. Wall Street's collapse ended that vision. The poor market just won't support price hikes.

Looking Ahead
Building permits, which serve as an indicator of future activity, showed signs of life in December, rising 10.9% overall and 8.3% for single-family homes. While the overall number was the highest posted since October, and the single-family number was the highest in 15 months, the number of homes likely to fall into foreclosure in coming months and years is measured in the millions. In 2010 alone, RealityTrac projects a possible four million foreclosures. Coupled with unemployment that has stubbornly remained in the double digits, a massive national rebound in housing doesn't seem to be in the cards.

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