I have a quibble with Nouriel Roubini’s headline, “Housing Recession Deepens and Subprime Credit Crunch Spills Over to Other Mortgages,” but agree with the substance of his post. The difference of opinion is in the idea that the subprime credit crunch is “spilling over.” Lenders have gotten much more stringent with weak borrowers, and somewhat more demanding of better ones, but it isn’t a credit crunch as far as mainstream borrowers are concerned.
However, Roubini is quite correct is characterizing the housing market data as being worse than depicted elsewhere, and seeing it as a big negative for the economy as a whole.
Today’s figures on housing starts and building permits show that the housing recession is worsening. First of all the reported 2.5% increase in housing starts in April is a total optical illusion: the reported 1.528 million of housing starts was a 2.5% increase relative to a March figure that was revised significantly downward from 1.518 to 1.491. If you compare housing starts with the initial estimate of starts for March, the increase is only 0.65%. I.e. only if you blissfully ignore that March was much worse ex-post than its first estimate you can argue that you had an increase in April relative to an even more depressed March.
More importantly, and ominously, building permits plunged another whopping 8.9%, down to 1.429 million, their lowest level in 10 years. Building permits are a leading indicator of housing starts as you need to get a building permit to start a housing project. The usual lag between permits and starts is one or two months. So, since current starts are about 7% above current building permits one can comfortably expect that housing starts will fall again in May and the months ahead.
Other data from the housing market are no better; they all point to a worsening housing recession. Moreover, there is strong evidence that the massive credit crunch in the subprime mortgage market is now spilling over to other near prime and prime mortgages and also more broadly to some non-housing components of consumer credit.