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April slowing in housing starts is bad news but not a surprise

posted on May 17, 2011 at 6:39 pm
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I’m seeing headlines calling the 11% drop in housing starts announced this morning (May 17) in April from March “surprising,” but I don’t see why. Flooding and tornadoes in the South shut down construction sites in a big swath of states this spring. (April 2011 was the 10th wettest April since the start of records in 1895. The 875 tornadoes reported in the month are a record.) Housing starts in the south fell 23% from March levels.

But whether you’re surprised or not, there’s no doubt that the housing industry continues to struggle two years after the current economic recovery started. Housing starts in April came in at a 523,000 annual rate. That’s 11% below the annualized rate for March and considerably short of the 569,000 rate forecast by economists, according to Bloomberg.

There’s no quick turnaround in the cards either. Building permits, a number that forecasts future housing starts, fell 4% from March to an annualized rate of 551,000. Economists had projected a pickup of 0.9% to an annualized 590,000.

As you might expect the bad news on housing starts has been bad news for housing-related commodities today, May 17. Copper futures for July were down 0.25% as of 12:07 New York time. Lumber futures were down 3.27%.

The next important housing numbers come out on May 19. Economists are projecting that sales of existing homes, which make up more than 90% of the market, will climb 2% in April to an annual rate of 5.2 million. Officially there are 3.5 million existing homes on the market but estimates for CoreLogic say another 1.8 million houses are delinquent or in foreclosure as of March.

That’s a lot of inventory to move.

Last week homebuilder D.R. Horton projected that demand for new houses will stay weak into 2012.


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  • Purewater on 17 May 2011

    I don’t see how the reduction in housing starts is bad news. As you said yourself, there’s a massive excess of inventory. More housing starts just piles on top of the already bloated inventory…which leads to even lower prices, more foreclosures. Rinse, repeat.

    If we’re ever going to see home prices rise again, we need a supply/demand balance, not an ever increasing pile of homes for sale. A recession/depression in the home building industry is the cure and it should be celebrated not looked at as bad news, because it will cause GDP to drop.

  • ogreggy on 18 May 2011

    More proof that Wall Street simply has no clue what it is talking about.

    If a company has more inventory than shelf space to store it, why on Earth would some nitwit banker suggest there is a problem when they don’t build more inventory?

    This is an absurd post.

  • bag on 18 May 2011

    The difference is that the company does not own the inventory. Should the company be building more inventory? No. Do you want to invest in a company that can’t build or sell inventory? I would have to imagine that is also a no. This post is no way absurd if you follow home builders or commodities based on home building.

    Should home prices really be rising? If home prices were in a bubble, then aren’t we at a point where home prices are correctly priced now? Many people seem to think home prices should always be increasing faster than inflation, but in reality, I see no reason to expect that.

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