News Flash: Housing Starts Actually Go Up
It’s practically a moral dilemma for people who make a living reporting and analyzing real estate and housing news developments. Where skepticism is virtuous, it’s unholy to succumb to naivete or unmerited positivism.
Still, when one reckons with the fact that “headline risk” is in itself an economic catalyst, a factor that impacts consumer sentiment [not to mention professional sentiment and other workplace sentiments], which is a building block of leading economic indicators, a reporter’s or headline writer’s instinct to be skeptical comes up for question.
Take housing starts, for example. The Census Bureau issues monthly data, and for the first time in a series of months, the number DOES NOT GO FURTHER NEGATIVE. What happened is what typically happens when such a data even occurs.
The mainstream media–the very ones that report that the sky is falling 30 minutes earlier before the new data came out–now decide that it’s time to call the recovery, with headlines like Housing Starts Post Surpise Rebound, Up 22%.
Then the ones who know better, the ones who make a living, eating, sleeping, and breathing the stuff say, “wait a minute folks, these underpaid overworked reporters don’t know what they’re doing when they talk that way.”
For instance, The Big Picture’s Barry Ritholtz has a totally amusing typo-filled “Bad Headline of the Day” critique of Reuters for getting it all wrong with the housing starts story today. He’s vicious toward no one in particular and toward stupid editors and journalists in general who don’t know the first thing about reporting about housing starts.
Reuters has this headline/story:
New U.S. housing starts unexpectedly rebounded in February, surging 22.2 percent, according to data on Tuesday that provided a rare dose of good news for the recession-hit economy and fractured housing market. The Commerce Department said the jump in housing starts to a seasonally adjusted annual rate of 583,000 units was the biggest percentage rise since January 1990. That was also the first increase since April last year, when they advanced by 1.6 percent. January’s housing starts were revised to a rate of 477,000, the department said.
There is a grammar problem with the headline: I suspect they meant “Housing Starts Rebounded from January Lows.” Any improvement form the record low levels last month — the worst since since 1960 — does not mean a US turnaround has begun.
That may be an unfortunate words choice on the part of Reiters. It is not “U.S. Housing – Starts Rebound” — its more likely “U.S. Housing Starts – Rebound.”
On to the data: If we look at the breakdown by unit types, the gains in starts were mainly in multi-family units; single family starts were little changed. And, February was still down nearly 50% from prior year. The past 4 months rank as the worst housing start figures since the data was collected. The past 2 quarters have 6 of the 10 worst seasonally adjusted figures. (more …)
This is analysis. This is not headline writing. However, translate this into newspapers, building trade journalism, and TV business news, and you’ve got good old “Headline Risk” entering the economic equation.
Fact is, who’d have thunk that reporting on lagging Census Bureau data of all things would count for a plus or minus in the consumer confidence factor that figures so importantly on what happens next in the economy? But it does.
So, Mr. Ritholtz, while your analysis is impeccable, and even your conclusion is probably correct–which is that homeownership percentages are headed back below 65%, your method of getting to these conclusions is flawed.
Plus, you’re missing one of the opportunities to spot a structural change that will impact the data from this transition point onward.
First, agreed, lending standards were lax, and homeownership as a goal was given disproportionate policy and business mission focus for the past dozen years or so, and it created legendary wealth, unbelievable crooks, and a legacy of pain, shame, and confusion.
Still, the reason homeownership percentage levels will revert to mean is less about a cultural, regulatory, and financial catharsis, and more about sheer numbers of human beings. As 78 million echo boomers become young adults and create their first households, the shift from owning to renting is a demographic phenomenon, not a moral correction. Get over it. It’s not people being smarter or more prudent in their financial engineering. It’s people being 20-something.
Now, as for starts, and what’s happening. Here’s what Calculated Risk concludes in his cat-who-ate-the-canary style.
Note that single-family completions are still significantly higher than single-family starts. This is important because residential construction employment tends to follow completions, and completions will probably decline further.
One month does not make a trend – and the graph shows this is just a slight increase in total starts (and single family starts are basically flat with the record low). However I do expect housing starts to bottom sometime in 2009.
For starts to bottom, two things will happen, partly because they will and partly because the economy needs them to. One is that headlines will need to shift from “the sky is falling” to “recovery is near.” It’s just going to happen, whether journalists and editors know anything about real estate or not.
The other thing that’s going to happen is that large builders — the biggest ones — will be where the earliest signs of recovery will become evident. They are the ones in single-family who are closest to the goal of managing their unsold inventories, and it’s more of them who are in the 1% uptick in housing starts than smaller builders, because they need to keep their pipelines of ready-to-deliver homes stocked for the hearty souls who are still buying homes these days.
So, we’ll take not horrible headline news as positive news, and more positive for the high production home building community than for most of the builder universe. Inventory–and absolute vacancies–is still the key enemy of housing recovery across all residential product lines.