Housing Starts: The Numbers Are A Joke And Not A Funny One

Construction work
Construction work

Housing starts and permits up in April?? Why don’t you just stick a fork in the housing market and call it cooked! It’s not just counter-intuitive; it’s downright ridiculous.

New home sales are down nearly 37 percent from a year ago, prices in March were down 13 percent and inventories are up to an 11-month supply. So who in their right mind would stick a shovel in the ground?

Take a breath, and I’ll tell you who: Builders who need to survive. That’s what UBS analyst David Goldberg told me: “There are some pressures, especially on smaller private builders, to kind of build through the inventory they have in progress, to work what they have in progress to try to generate some cash. I think it's nothing more than a blip from that direction.

But you have to dig deeper into the numbers to see what’s really going on here. First off, the margins of error in this report are always huge; on starts alone it’s +/- 14.5 percent. But on top of that, the starts number was totally skewed by new multi-family starts (apartments) not single family. Multi’s were up40.5 percent month-to-month, while single-family starts were down 1.7 percent (and that’s for the 12th straight month).

Many analysts are simply sticking today’s numbers in the recycle bin, as I’d like to do as well.

Global Insight’s Chief U.S. Financial Economist Brian Bethune says:“We would not read too much into the April housing report beyond statistical noise.” Pali Capital’s Stephen East argues that the stock market’s surge on this news: “is the wrong reaction…At this point in the Housing cycle, only two metrics that report stronger than expected results—Sales and Pricing—should be rewarded in the market.”

I frankly can’t understand why anyone would think a bump in starts and especially permits is good news in any way, when home builders can’t give their houses away and immense quarterly write-downs of their assets scream that from the rooftops!

The builders will recover, but not until inventories come down and prices stop falling. Today’s numbers are not just a blip; they’re a joke, and a not too funny one at that.