Hoping the Housing Crisis Is Over

by: James Picerno

At long last, some good news from a pair of front-line economic reports.

Housing starts and new housing permits popped higher last month, the Census Bureau advises. After more than two years of nearly nonstop declines, robust increases in April in these two critical housing surveys lend fresh reason to think that the housing crisis, if not over, may at least be stabilizing.

Certainly the numbers look good for April, relative to the past. Housing starts jumped more than 8% last month, the strongest since last October. Meanwhile, new permits issued for building houses advanced nearly 5% last month--the highest since December 2006. In both cases, the actual numbers exceeded the consensus forecast by a healthy margin, according to Briefing.com.

April's rebound in these numbers is all the more encouraging since both data series are considered leading indicators. Economists consider housing starts and new housing permits a sign of what may be coming rather than what's passed.

Adding to the statistical cheer is yesterday's better-than-expected update on inflation for April, the Bureau of Labor Statistics reports.

But there's still plenty to worry about. The notion that the economy may be at or near a bottom is one thing. Expecting a strong rebound is something else. Indeed, yesterday's report showing a sharp loss for industrial production last month reminds that not all the news for April is encouraging.

Meanwhile, as inspiring as today's housing starts and permits numbers are, putting them in context with recent history is still a sobering task. As our first chart below shows, the fact that housing starts popped higher in April doesn't seem to alter the broader trend, at least not yet. It'll take many more months of higher housing starts to convince your editor that the winds have fundamentally changed.

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The same cautious outlook also applies for permits. As our second chart below reminds, it's far too early to claim that long decline is housing permits is over.

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Of course, if you've been beaten, slapped and cursed for a couple of years, the smallest bit of good news looks like divine intervention on your behalf. But it's worth pointing out that some of the smartest dismal scientists have been burned in calling an end to the real estate crisis. Recall that Alan Greenspan, the celebrated former Fed chief, said in November 2006 that "the worst is behind us" for the real estate crisis, as we reported at the time.

Yes, the housing crisis will one day pass. In fact, it may be in the process of bottoming as we write. But no one knows for sure, and the fact that the optimists have been burned a few times thinking otherwise suggests that it's still not time to bet the ranch on the idea that the housing crisis is over.

That caveat aside, there's reason for hope. We're certainly a lot closer to the end of this problem than we were when Greenspan made his ill-timed forecast back in November 2006. But no one should expect that housing will soon return to a roaring bull market. Having lost so much money in speculating on homes, with much of the cleanup still before us, the masses aren't likely to rush back in anytime soon, if ever. Licking the financial wounds will take time, even if macro signals suggest otherwise.