The Commerce Department released their new-home construction stats which showed a 5% increase in May over April, but starts are still 3.8% below last year. Building permits were 8.5% below last year’s pace.
Total housing starts rebounded from a 13-month low to increase 5.0 percent in May as builders worked down a backlog of unfilled orders under unusually good weather conditions. Issuance of new building permits fell by 2.1 percent, continuing the moderate downslide from the peak last September.
Download the press release [pdf]
View regional charts [macroblog].
There is some concern that too much good news will prompt the Fed to take stronger inflationary measures [WaPo] than it has in the past.
However, this news didn’t strike me as particularly good. Is it really inflationary to have housing starts rise as sales are slowing and inventory is rising? That doesn’t make a lot of sense to me.
I think the rise in new home construction is really blip and not the beginning of a trend [NYT].
Economists had expected the rate of construction on new homes to increase only marginally from April to May, according to a survey by Bloomberg News. So the latest figures were somewhat surprisingly strong.
“After three months of large single-digit declines, a rebound was to be expected,” Goldman Sachs economists wrote in a research report today. “The one we got was larger than expected, but certainly not enough to overturn the idea that housing is in a contraction.”
If the Fed interprets this to mean the economy is inflationary, then housing will suffer further with more rate increases. This rise really shows that more housing is being produced during a period of rising inventory and falling demand.
In other words, this isn’t a sign of anything positive.
Tags: Commerce Dept, NAHB, Census, Goldman Sachs
Of course builders want to start up again – even if it contradicts good business sense right now.
After all, a builder who isn’t building is, well, unemployed.
Making up the news
For a number of months now I have been following the popular press reporting of what many had come to refer as the “housing bubble”. I have had a number of e-mail exchanges with the some of the reporters as well as some of the people who have housing bubble blog sites. While I don’t expect much in the way of professional integrity from blog site people, I have believed in the mainstream press. Given my experience following this topic, however, I have come to the conclusion that there are biased writers and reporters in the print media who are working at portraying a “housing bubble burst” story when, according to top academic institutions, none exists.
An example is a story that appeared in the San Diego Union last week. In actuality, it was more fair in it’s representation than other examples I can cite but it still focused on the negative over the positive aspects of the data.
The headline for this story was “Other indicators point to housing market that has weakened somewhat after boom”.
Buried in the article was a paragraph that pointed out that an all-time new high sales price for resale housing was reached for the month of May in San Diego.
The article stated, “By contrast, DataQuick said resale house prices actually rose to a new record of $569,500 last month, up $14,500 from April and up $19,500 from May 2005. Resale condos rose $2,000 from April to $397,000, just shy of the all-time record of $400,000 set in March.”
While new home sales figures have been followed these past months and years, most of the previous “scare” talk has centered around the average Joe’s home and how they were going to be ruined in resale transactions. In addition, San Diego has been talked about for months as a prime example of an area with high possibilities of a housing bust.
So here we have news that the San Diego housing market was showing strength and the headline plus the text belabors the negative side of the data by focusing on new home sales. The real story would appear to be that resale prices have in fact increased in San Diego when many have said they would drop.
There is also a negative connotation given to data which may be generated by building industry people. In the San Diego Union story the writer says, “Industry leaders are grasping for ways to give a positive spin to the trends.” No such commentary is made when book writing/bookselling Robert Shiller is quoted. The fact that he has been prognosticating – “spinning” if you will — a housing bust story for years now is frequently not mentioned.
The respected LA Times covered this information in a story by Annette Haddad. Early in the article she said, “The air is finally coming out of San Diego County’s housing bubble.” as if to set the theme for her story. Nowhere in her article does she point out that resale homes in San Diego set a new all-time high. She mixes and matches the data to make her case and conveniently makes no mention of this important information. http://www.latimes.com/business/printedition/la-fi-sandiego15jun15,1,4781005.story?coll=la-headlines-pe-business
Other studies have also been under-reported such as Pomona College’s analysis which indicated that “fears of a real estate bubble are overblown, and homes remain undervalued in many markets.” Their findings question the implicit assumption that market prices previously matched fundamental values but now have exceeded them. The Pomona College researchers question the methodology by which some others have concluded that the housing market is “bubbly.” The report notes that “housing-bubble discussions generally rely on indirect barometers such as rapidly increasing prices, unrealistic expectations of future price increases, and rising ratios of housing price indexes to household income indexes. These indirect measures cannot answer the key question of whether housing prices are justified by the anticipated cash flow.”
The Harvard study released last week was finally given some press coverage as they pointed out – as they also did in their 2005 study – that the “housing bubble” issue was overblown.
One news source that immediately reported on the Harvard study was London’s Financial Times. They pointed out that, “After the slump of the early 1990s and the surge of the past five years, the housing market might prove an anti-climax to all concerned. The long period of stagnation forecast by the survey would disappoint home-owners who expect big price rises but also those who missed the boat and have been hoping for a crash.” (Emphasis added)
Another under-reported study was international and global and was done by the highly respected Organization for Economic Co-operation and Development. In this study of 30 countries the researchers concluded that the United States was not susceptible to a housing bubble. This important study received very little press in the United States.
A welcome press exception was the recent Bloomberg story entitled, “What to Do If the Home Bubble Is an Inflated Idea” by John Wasik on May 30th. That story quoted from a working paper titled “Assessing High House Prices, Bubbles, Fundamentals and Misperceptions” cited in the April edition of the National Bureau of Economic Research Digest. Written by Charles Himmelberg, a senior economist at the Federal Reserve Bank of New York; Christopher Mayer of the Columbia University Business School; and Todd Sinai of the Wharton School of the University of Pennsylvania, the paper takes issue with traditional measures of housing growth and casts doubt on a theory that a bubble is inflating even in the most stratospheric markets.
I believe that publishers and press media management officials need to pay attention to what is being sent out under their banner. Credibility is a well-known problem for the press these days and I believe it is seriously in question for a large segment of the American populace. The reputation of the media at least partially hinges on perceptions and many perceptions are that the “news” is highly “spun”.
In an exchange I recently had with a writer for Forbes, he said, “Journalists love bad news” when I pointed out the disparity and basic inaccuracy in reporting on housing. I guess I am to learn from that comment that I can always expect the negative analysis when I read the popular press? I have to question the wisdom of maintaining that behavior and philosophy if the industry is to survive.