This is where we note: It’s The Economy, Stupid!
I really wonder who dresses these people. We have another unexpected announcement about the economy, this week it’s the housing sector. Again. Last week we had reports of new lows in the price of resale homes and they were shocked. This week it’s a new low in new housing starts. Actually, the news is really about both January and February, from the Wall St. Journal.
WASHINGTON (MarketWatch) — New construction of U.S. housing units plunged in February, erasing a sharp gain in January and coming close to an all-time-low level.
A sharp gain in January! That should be cause for celebration. The key is “should be”.
Starts fell 22.5% to a seasonally adjusted annual rate of 479,000, the Commerce Department said. This is just 0.4% above the record low of 477,000 units set in April 2009.
The decline in starts in February was the largest since March 1984.
January starts were revised higher to a 618,000 pace from the 596,000 previously reported. The 18.4% jump in January was due to an 87.4% surge in apartment starts, which analysts attributed to special factors.
So let’s take a look at this and we really need to work backwards. The article in the Journal notes that economists were expecting a decline but were surprised by the actual drop. Needless to say, it was MUCH bigger than they thought it would be. We are about 18 months into the Administration’s program to resusitate the housing market and the result of their economic malfeasance is a 29% drop in single-family home starts and a 55% drop in multi-family starts. February has given us a new low in homes under construction on an annualized basis. Now I want to be both clear and fair about this. I do not blame President Obama for the current housing “crisis”. The bubble happened before his watch, even though his party has a huge hand in the foundation for the problem, but he didn’t cause it. What I do blame him for is doing not only nothing effective, but for throwing money down a rat hole trying to spend our way out the problem and that only exacerbates the problem and what could have been a crash that we are on the way out of, because of the Administration policies we’re now two years into a depressed market that will most likely be with us for another six to eight years.
Let’s take a peek at the January “good” numbers. The upward revision was due to an 87% surge in apartment starts. An increase in rental housing units. Now then, why in the world would be be seeing a surge in the constructiion of rental housing? Well, maybe because the folks with some skin in the game are thinking that the purchase side of the housing market won’t be picking up any time soon. And that is a really good assumption, in my opinion. I’ve noted this before, but it bears repeating.
- At the current rate of sales for existing housing, the MLS in most major markets represents 10 to 14 months of inventory. A healthy housing market is around five months.
- Sales is dropping (along with prices) every month.
- It is significantly more difficult to qualify for a mortgage than it was a year ago and it’s likely to be more difficult this time next year.
- A significant portion of potential buyers are out of the market because they have homes they can’t sell because they owe more than the house is worth so they can’t sell.
- Lenders are holding “real-estate-owned” on their books at about the same levels as the current listings of MLS.
- Lenders have loans in default – that are not going to cure – at about double the current MLS listings. Those houses will end up on their REO inventory.
The bottom line is that we have a multi year housing inventory in the US. That’s existing homes. If construction stopped for two years, nobody would notice. And let’s not neglect the fact that home prices are still about 25% too high in major markets. Just a couple of simple facts. BofA just created a “bad bank” and they’re transferring 13 million questionable loans off their books into the bad bank. In congressional testimony, an Administration official who is trying to save the HAMP program that is throwing huge amounts of money down a rat hole, the Administration admitted to five million delinquent mortgages. Given their record, they’re probably underestimating by triple.
It’s time for Congressional Republicans to get off the dime and stop this foolish spending that is doing nothing but stretching out the problems in the market. The only way for the market to rebound any time in the next decade is for the Federal government to stop trying to fix “problems”. By doing so they simply make them worse. Significantly worse.