Housing Starts Fall: Why That's A Good Thing


Housing starts fell by a little bit more than expected in May with permits down as well, and you can scream at me until you’re blue in the face, but frankly that’s a good thing.

With inventories of new homes at a record high, really nobody should be putting a shovel in the ground unless it’s already pre-ordered and pre-bought.

I know that’s not exactly what a big public home builder wants to hear. They build homes for a living, I get that.

The National Association of Home Builders wants tax breaks for home buyers to kick start the market. The argument against that is that it just helps to prop up prices which need to correct in order to bring the housing market back to health.

Dave Seiders, the NAHB’s chief economist, says he’s more worried about the health of the credit markets and further price drops would erode credit quality. He said he’s worried about the price correction “over-shooting” which he said could be a “doomsday scenario.”

I don’t know about that. Prices rose dramatically during the recent housing boom, and if you look over a longer time horizon than just the beginning of the downturn, you see that they haven’t given it all back yet. We tend to look at numbers year over year or even month to month, and that’s where we see the big dramatic drops.

But look over five years and it’s not as bad as you might think. If you bought a home two years ago and you need to sell it now, you lose. That was the gamble you took. Most people don't buy homes with the intention of selling them so quickly.

Correction is painful. There are ways to mitigate the pain, but much of that pain is necessary.

Questions? Comments? RealtyCheck@cnbc.com