We just got our latest look at home construction, and it wasn’t good …
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Housing starts plunged 10.6 percent to a seasonally adjusted annual rate of 523,000 in April from an upwardly revised 585,000 in March. That missed expectations for starts of 569,000. Building permits fell 4 percent to a 551,000 SAAR from a downwardly revised 574,000 a month earlier. That also missed expectations for an increase to 590,000.
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By property type, single family starts slumped 5.1 percent while multifamily starts plunged 24.1 percent. The permitting breakdown was -1.8 percent for single family and -8.8 percent for multifamily.
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As for the regional breakdown, starts fell 4.8 percent in the Northeast and 23 percent in the South. They rose 3.7 percent in the West and 15.7 percent in the Midwest. Permits flat lined in the Northeast, but fell 0.8 percent in the West, 5.3 percent in the Midwest, and 5.7 percent in the South.
The housing market is a little like a pet rock. You keep staring at it, expecting it to start doing something … anything! But month after month, it just sits there. In April, for instance, housing starts once again slumped into the low-500,000 annualized range while permitting activity faded 4 percent. That leaves home construction in the same depressed range it has been mired in for two and a half years.
The simple reality is that we had a once-in-a-lifetime bubble thanks to easy credit, nonexistent regulation, rampant speculation, and more. The government has responded by throwing hundreds of billions of dollars at the problem, while the Fed has been printing money like mad. Yet it has all accomplished very little. That just underscores the point I’ve made for a very long time — the only "cure" for the housing bust is the passage of time and lower home prices.
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Good,
For us homeowners. The only way our homes can reverse the downward trend in value, is for the number of homes on the market to decline. Every new home constructed in my area just lowers the value of my house. Any builder constructing a spec home in this market is an idiot.
I live in the midwest. Believe it or not, I see quite a few new homes going up in my area. Also, the huge number of for sale signs that were scattered about every neighborhood are largely gone. I think the driver is that the affordability of houses is very high with the combination of depressed pricing and low mortgage rates. Property taxes have also been going down. So at least for a probably non- representative sample, its not looking as bad as the picture you have painted here.
How can builders make any money with so many depressed properties on the market? I think they are able to buy lots much cheaper than during the boom and they cut out a lot of the extras that drove the prices of the boom houses up. Also, in my neighborhood, we had a sizable morgtage fraud problem that resulted in a lot of vacant houses. Most of these problem homes are now occupied by ligitemate owners. It just took a lot of time to work through the mess.
Mike,
You advised us all to sell, sell, sell if we had any investment real estate properties, especially condominiums. Yet you advise us in your columns to buy inverse ETFs. Inverse ETFs are merely electronic data entries and a most pieces of paper. A house or condo is a real tangible thing.
Should a true calamity befall us, and the infrastructure break down, and should electronic communications break down, even temporarily, which would you rather own: A real property you can see, touch, and live in or rent out OR an electronic entry in cyberspace totally controlled by someone else, perhaps even in a foreign country?
The guaranteed (under present laws) tax advantages and rental income from properly managed investment properties can far outweigh any potential (but never guaranteed) profits from super risky inverse ETFs. No one really knows which direction the crazy markets will take. Larry Edelson calls it “volatility.” Placing money in inverse ETFs compared to placing it in tangible real property is like nailing jello to a post, compared to dunking a basketball into the hoop.
Give me real property any day.
It always makes me smile when folks say their homes have “lost value.” That is all relative. It is only on paper. The home is still the same. If all homes go down 10% in value over what they were one year ago, how can you say they lost value. They are all valued on the same scale. If everyone is on that new scale, then, in actuality, no value was lost.
Only inflation makes it seem like value was lost. If we all had to pay $800,000 for a tiny 2 bedroom bungalow in Manhattan Beach, California in 2006, and if we all have to pay $650,000 for that same bungalow today, how is value lost? You sell your home for 20% less, but you buy the next one for 20% less as well. You sold it previously for $800,000, but you had to buy the next one for $800,000.
Give me the lower valuations any day. The only people that make a killing when prices are inflated artificially high are the banksters making the loans and the greedy real estate brokers who rake in the 5% commission (that’s $40,000 on the Manhattan Beach bungalow, for a few hours of work!!!).
You should rejoice when all home prices go down and stay down. Then the average working person can actually afford to buy, instead of hoping for inflated prices on homes where only greed makes out and the common man ends up with a foreclosure and losing his deposit.
No money even existed until the bank made the loan. It gave you the loan with nothing to back it up. But if you default it keeps your deposit. Amazing, no?