The Housing "Recovery" in Context
Investors turned giddy on housing-related equities last week after data recorded a sixth consecutive increase in housing starts to a seasonally adjusted 598,000 units.
This chart, however, provides visual context for where these data really fit into the long-term picture. [In previewing the post it appears to be cut off to the right, which affects formatting for the entire post. I will instead post this first chart to the comments section below.]
This uptick is of course a welcomed change of direction, but please consider that without the $8,000 first-time buyer credit these gains would not have been possible. If the program is extended as was being discussed last week, we can expect some momentum behind these improvements, but it's not natual momentum ... and therefore remains vulnerable to abrupt corrections. One has to wonder, furthermore, how many homebuyers are now buying because of the program that will A.) have a household member lose a job in the next year, or B.) were only marginally in a position to buy and therefore pose a higher risk of eventual default. I have the same complaint about cash for clunkers, BTW ... that enticement can lead people to overextend themselves. Everyone loves a deal, whether we can afford it or not.
I'm certainly not suggesting that home construction activity needs to approach pre-bust levels to constitute a legitimate and sustainable recovery ... not by any means! I'm simply reminding folks to consider the government's hand in the early stages of this reversal, and to think long and hard before deeming the improvement sustainable.
I will consider investing in a home a good deal once the mean home price measured in gold matches at least the 1980 low and the longer-term, pre-fiat historical baseline of about 100 ounces of gold. This is but one basis for my continued expectation for another 50% depreciation in USD home prices before this crisis will have found a true bottom.
I also consider it entirely reasonable under the circumstances to expect the ratio of median home prices to median income to return to the pre-boom range.