Don't Buy the Housing Headlines

The Wall Street Journal says, "Surprise Jump in Housing Starts."

Yahoo Finance says, "Housing Starts Surge Unexpectedly."

So let's look at the data:



The uptick doesn't seem to match the headlines. We've seen a few up months during the downward trend, so don't get too excited. We are still overbuilt in houses, as shown by the vacancy data.

You might wonder why any housing units at all are being started. Remember that housing is local, so there may be a community without the huge excess inventory. Then examine the inventory in that community; there may be neighborhoods without an excess. There may be types of housing and price points that are not in excess. That justifies some new construction.

Economic outlook for housing: still weak all through 2009. Sorry, don't buy the headlines.

Comments

[abetterplace:]

"The worst of the housing bust is over. " We all need to hope this is a headline we can read shortly and I believe we will.
With the passing of winter and spring upstarts, a substantial portion of the ever increasing population will be buying again.
The highs we have seen in the past will be long in coming, but they should be, as the highs were fueled by sub loans.

Mar 18 07:50 AM

[Tradememe:]

Any upward trend will have to start with an uptick. So, true, let's not get too excited by that single datapoint and let's wait for the overall trend in the next few months.

Mar 18 08:46 AM

[Joe Adamaitis:]

Not to burst anyone's bubble, but I don't think anyone's doing their homework. In FL and the top 3 or 4 other disaster states for housing there are huge inventories and any mention of new housing and or building starts is simply ludicrous. While this news may make a number of folks feels good, reality is that we have serious other variables to consider before getting all giddy.

If we begin with the basics, unemployment will decimate any real growth as it continues to reach monster numbers. Next we can consider nearly one trillion in pay option arms which are just idling on the sidelines. And oh yes, just as we round the corner out of the housing mess in perhaps middle to late 2010, we will be reminded via high interest rates of those trillions we’re borrowing. Lastly, less we forget the sound of a cracking commercial market where owners cannot find tenants and vacancies begin hitting hard.

So while Wall St celebrates small gains based on political statements versus statistics, and everyone get's that 'fuzzy feel good' momentum, I would say, beware. I know Larry Kudlow is about to jump out of his shorts (no pun intended) every night with his chosen 'Mustard Seeds", and I love him dearly, but we need to keep it all in perspective.

With the trillions being spent, unemployment near 6 million, thousands upon thousands under water, a trillion in pay option arms (Countrywide - Wachovia) and these short sighted loan modification programs which a majority will end up in default, I am not being a pessimist, but rather a realist. Am I an economic genius, an insider in the administration? No! I have my boots on the ground and I am speaking with distraught borrowers and people out of work each and every day. Sorry folks, I think we have a lonnnng ways to go and I am sitting quietly on the sidelines until the real ‘mustard seeds’ show up. PS, keep an eye on those Pay option arms! They may be a small piece of the pie, but they will carry a heck of a punch.

Mar 18 09:00 AM

[Smalltownba...:]

You are 100% correct but so is "Ed K". Let's keep an open mind and watch for a trend. By the way "Joedirect" this recovery will not begin in Florida. California, Arizona, Michigan or Nevada. They will trail the rest of the Nation back into prosperity.

Mar 18 09:19 AM

[Joe Adamaitis:]

You are absolutely 150% correct. Sellers in FL are still looking for that person (as they say in the auto biz, 'there's a-s for every seat') and are part of the prolem with rising inventory. We have new homes being built for $100 per sf while the seller of a home purchased in 2005-2006 is asking $200 per sf. Hopefully the lights go on. Couple that with those up north who have lost their 401k's, and cannot sell their homes and you have a real disaster brewing.

Lastly, the unemployment here is really skyrocketing.

On Mar 18 09:19 AM smalltownbanker wrote:

> You are 100% correct but so is "Ed K". Let's keep an open mind and
> watch for a trend. By the way "Joedirect" this recovery will not
> begin in Florida. California, Arizona, Michigan or Nevada. They will
> trail the rest of the Nation back into prosperity.

Mar 18 09:32 AM

[Rhett:]

With the current hugely excessive inventory, anyone who says housing has hit bottom is living on another planet!

Mar 18 10:49 AM

[PROXIMO:]

Thanks for the context.

Mar 18 01:57 PM

[henarl:]

Why would anyone start to build a new house when down the street the bank is selling an equivalent foreclosed one for less than the cost of construction? And the banks are getting new foreclosures to get rid of every day.
As a retired developer and contractor, I can tell you that now is not the time to start new home construction.

Mar 18 04:31 PM

[Griz:]

Lest we all talk about the "official" inventory numbers, but the truth is that banks are sitting on their REO's. There are FIVE vacant houses on my street alone (part of a large southern Orange County $1M+ row-house neighborhood), that have no for sale sign and aren't even listed in MLS. The banks are trying to preserve the value of their portfolios by not flooding the market with all of the houses they have available. I think they're hoping this somehow avoids the mark-to-market issue, but it will ultimately only delay the pain.

Mar 18 05:40 PM

[Dr. Bill Co...:]

Thanks for the comments, folks. Here are some reactions:

JoeDirect and smalltownbanker are both right: a few markets are hugely disastrous, and the recovery will not start there. It's actually good for the country as a whole for the housing oversupply to be highly concentrated in a few states. The excess supply in Florida does little to lower demand in, say, Maryland. Once the states that are not hugely overbuilt get a bit of growth, then contractors go back to work and sawmills reopen. We can get some strength in total economic activity even with some pockets of weakness.

Regarding the housing vacancies, Griz's comments point up the importance of looking at true supply, which is best measured in the Census Bureau's vacancy stats. The usual measures, based on homes listed for sale, can be very misleading.

Thanks for the comments, friends.

Mar 18 06:42 PM

[rockaway:]

OK, If the market is saturated, as it is in S. Florida, especially, rather than buying, the people I know are putting their cash into their current homes because they're not going anywhere soon and a new kitchen or bathroom will payoff in the future. But, even with what is going on in the housing industry, isn't owning Home Depot/Loew's a common sense buy as because of constant growth in S Florida, it is only a matter of time until current inventory is substantially depleted, sales p/u and the remodeling of current properties continue. Families still need a roof over their heads and being a RE Agent, I can tell you that apts. are getting old real quick. Home Depot/Loew's are set for a influx of money now because of additional remodeling and the inevitable building which is a gimme.

Apr 01 07:54 AM