Below is a quick graph I made (thanks to a data service called FRED at the St. Louis Federal Reserve Bank) Wednesday morning after seeing my wealth once again vanish in an early morning stock market session. There appears to be much hand-wringing over the fact that housing starts in May 2010 came in lower than April’s number – and lower than expected. One Bloomberg story said “…housing is mired in a slump.”The May starts were 593,000 units. So I went to the Census web site to see what the data said. http://www.census.gov/const/startssa.pdf
I decided to focus on the monthly data from January 2008 to May 2010. The data are seasonally-adjusted. It is true that starts fell in May. The decline was pronounced. But what else was true? First, the 593,000 starts figure was not zero! Lots of housing was started in May, 2010. Second, the 593,000 was a bunch higher than January 2009 – in fact about 22% higher. The May 2010 value was also 8% higher than the year earlier May 2009 value of 550,000 starts. Fourth, the 593,000 starts were higher than 13 of the 17 months in my chart – the other four months were very much affected by the end of temporary government subsidies. We can’t really know why the stock market started so low on May 16, but it does cause one to pause and wonder why this housing market information would be interpreted as a negative economic signal. I concur with others that the housing market is critical and I share frustration that it has not sprung back faster. But the graph is hardly a picture of a slump and it wouldn’t hurt for more people to see that housing starts since January 2009 have followed a very positive trend line. The data vividly shows how one month can iron out much of the sales lift of a temporary stimulus. A big question now is whether or not housing buyers will stall their coming summer purchases – knowing that if they don’t buy soon, Congress will rush in with another package.
Note -- as I view the chart on my computer -- it is not all visible. I cannot seem to get it to fit right. I can see most of the data points but not those for 2010. So here are the data for January through May 2010 -- 612,000, 605,000, 634,000, 659,000, 593,000.
One month does not make a trend. Let's wait a few more months. The summer is the time for housing starts to be at their peak. There still is significant inventory in the market. Over-built inventory. There still is very tight lending and reduced equity in stock portfolios. The question is ..other than normal population growth...where will the demand come from. In the past the hottest areas of the country(no pun intended) were the Southwest and Souteast. this was fueled by retired baby boomers who sold their homes and moved south. They cannot sell their homes as well and especially not for the equity they were counting on taking out. Plus many of them have to continue working. The population increase we experienced in the past decade was mostly from low and moderate income minorities....not many home buyers there. Things have changed. This is a new economy. We need to see a new model.
ReplyDeleteFirst comment is about Wed stock market. When asked what the stock market would do Bernard Baruch replied "it will fluctuate". Yesterday the market closed up about 5 after big swings earlier.
ReplyDeleteAs for the housing market, as opposed to housing starts, I am not convinced the huge backlog of new and existing homes combined with new housing starts will not simply drive down home prices.
All true but when coming from such a low number, the analysis may have less to do with the usual growth matters and more to do with moving back toward something more normal. The progress of the recovery, movement of incomes and employment from a depressed level, confidence -- those are some of the things that would seem to matter a lot right now.
ReplyDeleteThe above comment was meant for Jim. This one is for Mike....Mike -- you too are on the money. I would only add that I agree that there is still pressure out there to decrease housing prices. And recall that high housing prices were part of the problem. Restoration of sane housing prices might be part of the solution...
ReplyDeleteThe bleeding in the housing market may have been stopped. But real recovery in that market will not happen until significant and sustained improvements are seen in unemployment. And I feel pretty confident that a lot of businesses would like to be hiring except for two things: the expiration of the Bush tax cuts come January and the monstrosity that is ObamaCare. If Obama were to extend the tax cuts AND acknowledge and reverse some of ObamaCare's more heinous flaws, unemployment would drop fairly quickly. But if Obama has shown us anything is that he is not going to be deterred from the left-wing agenda no matter what.
ReplyDeleteThanks John. Lots of land mines out there. I agree. But you gotta admit that as the weak recovery continues (3% growth ain't zero) and mortgage rates are very low and housing prices have not recovered, these are some factors that ought to help solidify the beginnings of the movement upward in housing starts. I am not telling a story of dramatic growth -- I am just suggesting that we might have a floor under the recent improvements.
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