To say that the housing starts number from the U.S. Dept. of Commerce today defied the Street's expectations is simplification to the Nth degree. The starts number defies logic, and it defies common fiscal sense. To be fair, many of the experts I spoke with today wrote it off as a "fluke," and the Commerce Dept.'s number has a notoriously high margin of error, especially in the permits breakdown. Still, given all the hype of a meltdown in the subprime mortgage market, reports of a sluggish spring season in sales and federal and state regulators scaring people away from local mortgage brokers, why in the name of Tyvek would anybody want to dig a hole in the ground??
Here's another factoid that won't get a lot of play in today's cheery number: the chief economist for the National Association of Home Builders tells me that while cancellation rates for the big public homebuilders were finally beginning to ease off of historic highs, they are now starting to climb back up again due to fallout in the subprimes. I know, you're thinking, new homebuyers aren't necessarily subprime borrowers, but here’s the rub: most new homebuyers are trading up from low-priced homes. As subprime lending tightens, fewer and fewer low-income borrowers can get the loans they need to buy those low-priced homes. If the new homebuyer can’t sell their current home, they can’t buy that brand new one.
I also spent much of the day listening to a hearing in the House Financial Services Committee entitled "Possible Responses to Rising Mortgage Foreclosures." I gotta say, I didn't hear any. Sure, they talked about refinancing all these borrowers into fixed rate products, but that's a lot easier said than done. Somebody has to pay for that, and not a lot of folks in government are raising their hands.
Then I get a press release from DataQuick in California, saying that defaults in the first quarter of this year are more than double what they were last year... double and a half in San Diego County. California is a huge market for new homebuilders, and already DR Horton says orders for its new homes in the state plunged more than 40% in their last fiscal quarter. Cancellations are climbing up on them as well.
Homebuilder sentiment dropped this month as well, with builders surveyed nationwide saying they are seeing very thin buyer traffic. Sales expectations are back where they were last fall, dropping from recent optimism for the spring season.
I have to say it again: Why would people want to dig a hole in the ground, especially when the housing market is falling down around them?
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