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Can It Get Any Worse?

The January housing starts number, at 466,000, was the worst in history. Really. The worst since records began in 1959.

So, this must be the bottom, right? I mean, there are 1.2 million new household formations each year; we are not even producing enough replacement housing. It has to turn around, right?

Yes, but not immediately.

The Street remains bearish on housing. Home building stocks have been declining this year and some, like Hovnanian, are at multi-decade lows today.

Here's why:

The issue is WEAK DEMAND. For example, while housing starts are down 79 percent from their peak three years ago (according to JP Morgan), the inventory of new homes for sale has fallen only 38 percent from its peak.

A lot of home buying is discretionary many buyers do not have to move. That discretionary buyer has evaporated.

It's not any better for existing homes: there is a better than 10 months supply of homes for sale, still far above the historical norm.

The Street believes that weak demand will continue into 2009 due to rising unemployment, low consumer confidence, and continuing tight credit. High foreclosure rates, despite the announcement by the President today, will also be a significant headwind.

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