Hoping the Housing Crisis Is Over

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.

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.

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.

Comments

[DaveW:]

This article needs a more realistic take on the 'actual' numbers behind THE number, see Reggie Middleton's smultaneous and more factual post:

seekingalpha.com/artic...

2008 May 16 03:54 PM

[redriver:]

Hope is more dangerous than all the world's evil combined because it prolongs man's torment.

Zeus

2008 May 16 05:20 PM

[Alpha Seeker:]

Hm, weird, take a look at the main US charts and they will tell you if it is over

2008 May 16 09:36 PM

[Heyoehkah:]

More housing starts is bad news for housing not good. If the builders act on these permits they will only be adding to an already bloated inventory.

2008 May 16 10:05 PM

[bruin532:]

What world is this author living in, he must be a member of the Presidents plunge protection team because your living in a dream!

2008 May 16 10:34 PM

[drmalaka:]

I thought that seeking alpha had a no smoking crack while you write policy. Those are possibly the two scariest graphs I have ever seen. I have been on roller coasters that were not as steep.

Look at the permits bounce between '06 and '07. That was the best news I had seen since Vince Vaughn split up with Jennifer Aniston. He was way too good for her.

2008 May 16 11:07 PM

[papita:]

the spring like weather in most parts of this country was responsible for the jump up in housing starts. and I agree with the person who said more housing starts only adds to the unbelievable high inventory. prices must come down at least another 25% to even be reasonable. go to south florida. houses that were selling for 250k in 1999 are still trying to be sold for 3x that amount. and they are crappy little houses that need work. who in their right mind would spend that? oh, I know, my asshole cousin who lives in colorado who thinks the sun shines from his ass because he lives in Vail. He's been living off his father in law his whole married life. no chance he'd ever see this. seeking alpha is much more than he could ever understand.

2008 May 17 06:29 AM

[Jack Swanson:]

The author of this article is a MORON. He can't read charts either. What on that chart indicates a bottom, a little hook, like the one above this awful chart. This guy is a crack addict...what a jackass.

2008 May 17 08:28 AM

[ecklebob:]

They are building APARTMENT complexes for Gods sake! Since there is a glut of new/existing homes that are not selling, the builders are now going to glut another market. GOOD INFLATION NUMBERS?!?! What rock did this guy crawl out from under? Keep your day job flippin' burgers.

2008 May 17 10:06 AM

[richjoy:]

"Hope is more dangerous than evil..."
"...living in a dream"
"...smoking crack"
"prices much come down another 25%"
"moran...jackass"
"...what rock did he crawl from...flippin burgers"

These negative responses are over-the-top!

All Mr. Picerno said was "IT'S NOT OVER", but we're closer to the end than the beginning--which means we are more than half way through the "housing crisis".

National housing permits peaked in late 2005, and prices soon after...If we are now, after 2 1/2 years, half way through the "crisis" period, it would be over +/- mid-2010.

Isn't it more than likely that even if we are not to return to "peak housing prices" for another 4 or 5 years, we will probably not be in "crisis" more than another year (mid 2009)?

And what's wrong with building appartments?...Are you suggesting there is no need for appartments because there is an appartment GLUT?...Where do people live when they have lost their home due to bankruptcy--do you suppose many rent?

You seem unable to accept good news when it is not the BEST news; second, your collective comments suggest you enjoy wallowing in "we're in recession/don't confuse me with facts..."all news is bad news, even if it's good news!"; and finally, if you are looking for a taxpayer bailout, you should have the guts to say so.

These reports are NATIONAL, but all real estate is LOCAL. Yes, there are serious home surpluses in many SMSAs on the coasts and Detroit/Los Vegas, but some markets are either doing reasonably well or only in a mild correction (from historic price inflation). The markets with the most serious surpluses are almost all those with the biggest recent building booms/price inflation.

2008 May 17 11:16 AM

[Tom Lindmark:]

The author should have looked at the numbers more closely before he started opining on a bottom. New home starts actuall fell 1.7%. The overall number went up because construction of homes with 2 or more units jumped 36%. These are apartment buildings, needed no doubt to house the foreclosed families. Go here to get to the heart of the information-blog.metro-real-estate...

2008 May 17 11:47 AM

[ed auerbach:]

I love negativity!! Ever hear of 'climbing a wall of worry' Have any of you bears made a buck with this last 1000 point move? I doubt it. Tell me when you think things are looking up and I'll bail.

2008 May 17 01:23 PM

[Scott Weitz:]

Bears are right here. This proclaimed "good news" of housing starts is actually a drag on the market. The last thing we need is a bigger inventory of homes for sale. This ship will not be righted until inventory drops to historic levels.

2008 May 17 03:20 PM

[gordon:]

Jim is 1 of the best, I read his stuff on financialsense.com, where I urge readers to go. I am convinced Paulson arranged the TAF , an open-ended Fed-White House checkbook, to prop the market, running $400 Billion so far, borrowed @ 2.25%, renewed every 28 days, it's now obvious to many writers. They are buying SPY/DIA cash futures, trading them between themselves in offices in different countries, Goldman, JP Morgan, Merrill, primarily. Even Bank of America is now pissed this money-train isn't available to the traditional banks, they commented on it last week, it's not a level playing field if not a member of the "Working (Overtime )Group".
They are pushing it up to break the 80-week $SPX moving average to cause a massive short squeeze, the market indices are all climbing to important technical levels, only the broker-dealers could conspire this. Foreign inflows, domestic inflows aren't happening. Much of this practically- free money (m3 running 18%) is being traded in energy/agricultural commodities, according to financialsense and other sites. Connect the dots. Paulson, in his final turn of the knife on American middle class, has given his elite rich buddies a commodities speculating playground, while the average taxpayer will be crushed by ever higher gas, food, for years. Stagflation. Bush's final farewell, like he said a year ago, " I think... I AM still relevant"
Play by the tape, not emotion. A break of $SPX 1440 means you need to be long, until wrong.

2008 May 17 07:03 PM

[peterthepai...:]

sure the rough comments are OTT and sure this housing thing aint over yet but looking at the stock market during this difficult time is gobsmacking!

either gordon is right and it's a fix or the reason stocks will go up is because investors think that is what will happen. - bubble money looking for a place to go!

2008 May 18 10:07 AM