The following article discusses Pulte Homes, Inc. (PHM), D.R. Horton, Inc. (DHI), The Ryland Group, Inc. (RYL) and Beazer Homes USA, Inc. (BZH).

In November, both housing starts and permits fell to record lows. I consider this to be good news, since it represents a decline is misallocation of resources and means we might eventually work off some of the huge inventory overhang and some day see an end to the housing mess that is ground zero of the economic turmoil.

In the meantime, though, it means that economic growth will be even weaker in the fourth quarter than most are currently expecting. Building permits, the best indicator of future housing starts, fell to a seasonally adjusted annual rate of 616,000, a 15.6% decline from the 730,000 rate in October and 48.1% below the 1,187 million rate of a year ago.

All four regions of the country were down, both on a month-to-month basis and year over year, but clearly the West held up best. Permits there fell just 3.7% for the month and are down 43.6% year over year. Worst hit for the month was the Midwest, where the monthly decline was 22.1%, and the year-over-year decline was 46.9%. The all important South region fell 18.7% for the month and is down 50.3% year over year, while the Northeast posted drops of 14.7% and 49.2%.

From these numbers, it is very clear that there will be no rebound in housing starts as we enter the new year. Given the inventory overhang of both new and existing homes, and a very weak economic environment -- which is most likely causing negative housing formation (more people deciding to take on roommates or move back in with Mom than setting up their own place) -- I think that the permits levels are still way too high.

Housing starts tumbled 18.9% for the month, to a seasonally adjusted annual rate of 625,000 from 771,000 in October and 1,179,000 a year ago (-47.0%). Keep in mind that the housing slowdown has been going on for well over a year now, and that Housing starts stayed over 2 million a month for over a year at the peak.

The Northeast was hardest hit this month with a 34.6% decline, and down 60.2% on a year-over-year basis. The Midwest was the next worst, with a 23.1% decline for the month and a 55.5% year-over-year decline. The West was down 16.6% for the month and is down 47.5% for the year. The South, which is by far the biggest homebuilding region, posted a 15.9% decline for the month and is down 40.9% from a year ago.

The decline in permits and starts means that there will be more layoffs in the construction industry. To this point, housing completions have not fallen as far as starts, (down 22.8% year over year, and actually up 3.3% for the month).

Of course workers work on the house until it is completed; they are not laid off at the housing start. But clearly the pipeline is starting to empty out. For most of the last year, some of the laid-off workers in residential construction could find new work in commercial real estate development. However, that is about to follow residential construction -- over the cliff.

I honestly don't know why most of the big publically traded homebuilders are still in business. Firms like Pulte (PHM), D.R. Horton (DHI), Ryland (RYL) and Beazer (BZH) simply serve no useful economic purpose at this time. I would continue to avoid them until we see at least half of the names in the industry go into chapter seven liquidation.