AM Economics: Housing starts, Mr. Market has it backwards
The Commerce Department published the December housing starts number today. Housing starts dropped 15.5% to a "seasonally adjusted" (HAHAHA) annual rate of 550,000 units. This is obviously a bad number. How bad? It's the lowest number of housing starts ever reported since the government started tracking them back in 1959.
Mr. Market definitely did not like this news. Immediately after the number was published, the S&P futures fell from negative 6 to negative 10. I realize that a low number of housing starts is an indication that the economy and the housing market are a mess, but if you haven't figured out by now then you have no business investing for yourself.
I personally view the low housing starts number as a very good thing. Here's why. The inventory of unsold homes is way too high right now. Basic economics dictates that if there is greater supply of something than there is demand for it, prices will fall. We need to begin to whittle away at the excess inventory that's out there. Many economists believe that any housing starts number that is below 600,000 will enable inventory to drop.
Builders need to STOP BUILDING NEW HOMES ALREADY!!!! I realize that's what they do, but home prices are not going to stop falling until the inventory situation gets under control.
If word came out that OPEC's production of oil slowed dramatically, the commodities market would rejoice and the price of oil would rise. However, when a report is published stating that the supply of new homes coming onto the market has slowed, Mr. Market boos. Home prices will never stabilize until the excess supply is worked off. The economy will never recover until home prices find a bottom. The stabilization of home prices will alleviate some of the banking problems because it will slow the decline in the value of assets on banks' books and it will stop the erosion of wealth that has been hammering consumer spending.
This is good news my friends, not bad...unless you are foolish enough to be a shareholder of a homebuilder right now (in which case you get what you deserve).
Housing Starts, Permits Hit Record Low in December