U.S. housing slump: Six years and counting

April 17, 2012

Just as Americans begin to regain some hope that the housing sector might be on the mend, we get another batch of data showing the sector’s not quite there yet.

Groundbreaking on homes fell unexpectedly in March to an annual rate of just 654,000, down from 694,000 in February and well short of the 705,000 Reuters consensus forecast. Some context: permits peaked above 2.2 million in early 2006, at the apex of the housing bubble. On the bright side, permits for future construction rose to their highest level in 3-1/2 years.

In other housing data this week, homebuilder sentiment deteriorated again after posting a pretty decent rebound from the very depressed levels seen in 2011.

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Regardless of the fact that the housing market is at pathetic levels historically, the builder data showed the rebound off the lows to be on track. http://bit.ly/IYSxuj

The headline number indicated an annualized decline of 44,000 for total starts, or a monthly rate of decline of 3,666. Most of that was due to multifamily starts, which are wildly volatile. Drilling down into the data, single family starts actually rose by 7,300 units in March, which is a far cry from the headline number implication that the housing market is falling apart. Single family starts normally increase in March and this March was weaker than usual, but is that a bad thing?

It seems that Wall Street analysts forget the law of supply and demand. Fewer starts mean reduced supply, especially considering the incipient rebound in housing demand, however small. Reduced supply versus increasing demand eventually leads to equilibrium, and ultimately to rising prices if those trends continue.


Posted by LeeAdler | Report as abusive