Has Housing Reached Bottom?

I must confess that I find Jim Cramer entertaining and, on occasion, even illuminating.  The key is to Tivo his show and fast forward through the less-than-illuminating parts.  That can trim an hour show down to ten minutes or less.

The highlight of Tuesday night’s show was Cramer’s declaration that the housing market had reached bottom. His evidence?  Tuesday’s data on housing starts, which came in stronger than expected.  That prompted me to take a closer look at the data. Here’s a chart of single-family housing starts since 1970 (when the data begin):

Housing StartsAs the chart shows, Cramer may be on to something, at least as far as starts are concerned.  Single-family starts bounced around the 360,000 level (at a seasonally-adjusted annual rate) in January through March, rose to 373,000 in April, and hit 401,000 in May.  It’s been more than two years since we’ve seen starts increase that much.

That’s good news, but I think we should still expect further pain in housing.

Why?  Because starts are only part of the housing story:

  • As Calculated Risk has emphasized, a bottom in housing starts does not imply a bottom in housing prices.  Indeed, history suggests that house prices may decline for months or even years after housing starts bottom.
  • In the near term, furthermore, the macroeconomic impact of housing depends not on the number of houses started, but on the total number under construction.  That number is still falling:

Under Construction

Those declines imply that housing will continue to drag on the economy for at least a few months, even if starts continue to show new life.

10 thoughts on “Has Housing Reached Bottom?”

  1. couldn’t this uptick, and others like it, be at least attributed to people like myself making purchases while the dollar’s still worth something? I’m currently buying all the stuff I know I’ll use for the next several years: canned goods, cleaning supplies, toiletries, etc.? Wouldn’t many people buy houses right now while interest rates are low? Why doesn’t anybody comment on this possibility?

  2. If you believe as I do that what we did was overbuild houses, then what you need to look at first are housing completions. Once completions drop far enough below normal that we look like we’ll use up the excess inventory, then you can start talking about housing construction starting back up.

    Short version – Best I can tell, we had 1.6 M excess housing units at the end of 2006. In 2007 and 2008, we used up .6M leaving 1M at the start of 2009. We’re running .8M completions per year less than normal right now meaning we’ll consume the rest of the excess inventory by next spring.

    Since it takes a while to plan, permit and build a house, things should be getting better before then, perhaps in the fall.

    Long version: http://azecon.blogspot.com/2009/06/re-running-numbers-on-housing.html

  3. My two $600k spec homes are rotting away here in Dallas – – a little more than twenty serious buyers since the beginning of the year and NO ONE can buy them, even if they have decent credit and solid income because the banks are NOT lending PERIOD. Cash buyers DO NOT abound like TV shows appear to promote on HGTV. Also, try running some tight EXPONENTIAL moving averages on these stats so the numbers are not ask biased. Builders like me are screwed while the banks get to hoarde the dough. GUESS WHAT DORKASS HYPE-ARTIST MR. CRAMER, IT IS SUMMER – – THE BUSIEST TIME OF THE YEAR FOR HOUSING SALES, of course the price rate will smooth out / hook up a tad while realtors are looking for ANYONE to bite on a price (especially newbies) – – hmmmm, what will happen to house prices when the season is over? FALL LIKE A ROCK. P.S. Hey you realtors, brokers, and appraisers out there, have any of you taken a brief moment to read the fine print on your NTREIS RACKET-WEBSITE? The “price sample points” you collect are skewed as far back into the past as possible, not to mention the B.S. percentage limit / tolerance rules applied by the gov’t to make the data look better. QUIT COLLUDING with the banks, hoard o’losers…

  4. It was a very nice theme! Just wanna say thank you for the data you have apportioned. Just continue writing this kind of post. I will be your true reader. Thanks again.

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