10/17/07 Housing Data - Where are we in the cycle / Recession dead ahead?

Yesterday's data was a mixed blessing. The manifest problems in Housing are twofold: Prices are too high, and inventory is too great. These are of course, related. Once prices come down further, the supply problems will begin to clear up. So the enormous drop in permits/starts is, perversely, a good thing.

The data:

• New construction of homes in the United States fell 10.2% in September (seasonally adjusted 1.19 million units)

• The drop in housing starts was the 4th consecutive monthly decline.

• We are now ar the lowest level for new home construction since March 1993.

• Starts of single-family homes fell 1.7% to 963,000 (annualized);

• Construction of large apartment units plummeted 34.4% to 228,000.

• Building permits fell 7.3% to a seasonally adjusted rate of 1.23 million -- the lowest level since July 1993.

So far, no bottom anywhere in sight. Two questions:

1) Are we in the 5th/6th inning, or the 1st/2nd inning.

2) Will negative growth in housing starts/completions lead us into recession? The chart below suggests that it will. In the past 40 years it always has.