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Housing Start Numbers: Good News Or Bad??

Tuesday, 19 Jun 2007 | 11:24 AM ET

I had a little trouble with the anchor this morning. She said the housing starts number was good news, “better than expected”, despite the fact that it was down. And then the building permits number was “disappointing.” I don’t blame her at all for the characterizations because a) she probably didn’t write them, and b) it’s really a matter of how you’re looking at the numbers and of course who you are. Take a look at the stats:

ACTUAL ECONOMIST ESTIMATES

Starts: - 2.1% - 3.5%

Permits: + 3.0% + 0.2%

AP

Good news or bad?
“It's both good and bad. This is an indicator of how bad the housing sector in fact is doing right at the moment and builders are responding by shutting down and in fact cutting production and cutting prices. Ultimately that's going to help bring recovery,” says Prof. Susan Wachter, professor at the Wharton School of Business at the University of Pennsylvania.

So given that inventories of new homes are high, inventories of existing homes are even higher, and rising foreclosures are only adding to inventories, the fact that builders are shutting down the backhoes is probably a good thing. A good thing for the housing market, which needs to correct back to prices and inventories that make buyers and sellers more confident to play the game, right?

But if you’re a builder, curtailing operations doesn’t exactly help you grow the business. And if you’re one of the guys who drive the backhoe (or however you work it), then it’s probably not a good thing for you either. And if you’re one of the guys who manufactures the backhoe or rents it out or whatever, then not so good for you either. You see where I’m going with this.

But back to the actual housing market, if starts are down then that helps to bring inventories back to healthy levels and helps the glutted landscape of for sale signs to be absorbed. The permits number is trickier. Permits are up, higher than expected, but applying for a permit doesn’t necessarily mean that you are going to put a house.

“You can see that the numbers have been all over the place. The one thing that’s a consistent trend is that the housing market continues to soften. I think we see the permits move up a little bit because as you move market by market – the key thing to move any housing nowadays is that a home has to be built.

No buyer – whether it’s an active adult or an entry-level buyer, is buying on speculation now. They're waiting ‘til the homes are built, so I think we’re going to continue to see starts move maybe a little bit more slowly, but permits move upward,” says Tim Sullivan, of Sullivan Group Real Estate Advisors.

I’d be interested in your take. Please write in with your analysis of today’s numbers, and we’ll post as many as we can.

Questions? Comments? RealtyCheck@cnbc.com

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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