Residential Construction Still in a Bottoming Formation

Sep. 21, 2010 11:41 AM ET4 Comments
Calafia Beach Pundit profile picture
Calafia Beach Pundit
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August housing starts came in a bit higher than expected, and remain consistent with a view that residential construction bottomed in the second quarter of last year, but has since made little progress. (Housing starts are the green line in the above chart.) Always on the lookout for market-based indicators that may lead the numbers put out by government agencies, I note that the Bloomberg index of 17 major homebuilder stocks (red line in the above chart) may fit the bill. It bottomed in the first quarter of last year and has spent about 18 months consolidating. It also predicted the modest slump in housing starts in May-July, and the modest upturn in August. Millions of investors on the ground and crunching numbers may prove better at divining the course of the housing industry than the folks at the U.S. Census Bureau who put out the housing starts number each month.

At the very least, I would venture to say that with housing starts and homebuilders' stocks failing to reach new lows after hitting bottom well over a year ago, one can say with some degree of confidence that we have seen the worst of the housing recession. More and more the issue becomes the timing and the strength of the recovery.

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Calafia Beach Pundit profile picture
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Scott Grannis was Chief Economist from 1989 to 2007 at Western Asset Management Company, a Pasadena-based manager of fixed-income funds for institutional investors around the globe. He was a member of Western's Investment Strategy Committee, was responsible for developing the firm's domestic and international outlook, and provided consultation and advice on investment and asset allocation strategies to CFOs, Treasurers, and pension fund managers. He specialized in analysis of Federal Reserve policy and interest rate forecasting, and spearheaded the firm's research into Treasury Inflation Protected Securities (TIPS). Prior to joining Western Asset, he was Senior Economist at the Claremont Economics Institute, an economic forecasting and consulting service headed by John Rutledge, from 1980 to 1986. From 1986 to 1989, he was Principal at Leland O'Brien Rubinstein Associates, a financial services firm that specialized in sophisticated hedging strategies for institutional investors. Visit his blog: Calafia Beach Pundit (http://scottgrannis.blogspot.com/)

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