Wednesday, July 29, 2009

Housing Starts From A Fresh Perspective

Tuesday's Wall Street Journal had a great little article by staff writer Mark Gongloff, entitled "Pyrrhic Victory in June Housing Data," about the June housing starts. It was tucked away on the back page of the Money & Investing section.

It's fairly short, so I've pasted it below:

Many investors celebrated Monday after June's "surge" in U.S. new-home sales. Alas, it was largely wishful thinking.

True, the Census Bureau reported sales up 11% from May. That is a big number, at first glance justifying Monday's 4.5% leap in the Dow Jones U.S. Home Construction Total Stock Market Index. But it fails a close inspection.

First, home sales quite often jump in June, the height of the spring selling season. When trying to gauge the strength of home sales, then, it makes more sense to compare them with the same month a year ago. That comparison is less kind -- sales were down 21.3% from June of 2008.

Seasonally unadjusted data show a total of 36,000 new homes were sold last month, the lowest June total since 1982, notes Richard Moody, chief economist at Forward Capital.

And the Census Bureau warns against assuming too much precision in these numbers, which are based on a sample survey. Accounting for a 13.2% margin of error -- at a 90% confidence level, suggesting the actual error could be higher -- new-home sales enjoyed somewhere between a 24.2% gain or a 2.2% decline from May.

New-home inventories are falling, an encouraging development. But inventories are still higher than their historical norm, and there remains an avalanche of distressed sales.

Little wonder, then, that June's "surging" sales were driven by heavy discounting. The median new-home price -- not seasonally adjusted -- fell 12% in June from a year ago, to $206,200, the lowest June sales price since 2003. And it was down 5.8% month on month.

To paraphrase Pyrrhus, if sales keep soaring like this, then home builders will be utterly undone.

That sounds more like it. Sales are down, year-over-year. And prices were discounted to get that.

Hardly a housing boom, is it? Or even a 'recovery.'

Yes, inventories of unsold houses are being sold off, but at lower prices. Which is a good thing.

But don't kid yourself that this is going to turn around next quarter....or the one after that.

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