The current supply of homes on the market is the best indicator of the future health of the housing market.
Let me say that again: Inventories matter.
Despite the fact that inventories of newly constructed homes fell to a 7.3 month supply in March from an 8.2 month supply in February, builders put 10.6 percent fewer holes in the ground in April.
You would think that all this new job creation, which usually goes hand in hand with housing starts, would push the starts up. Nope, both starts and permits fell in April.
Now a lot of folks are blaming this phenomenon on the weather, with tornadoes and rain throughout much of the Southeast. "The National Climatic Data Center reported that April 'was an historic month for severe weather across the Southeast region,' If we exclude the 23 percent m/m fall in housing starts in the South, overall starts would have risen to 599,000," notes Capital Economics' senior economist Paul Dales.
I'm sorry, but I really don't buy the weather story. Yes, I'm sure it had some effect, but permits were also down 4 percent, and home builder confidence is stuck in the basement, with builders reporting weak buyer traffic and a drop in sales expectations over the next six months. This does not make a builder build.
So back to my inventory issue.