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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

May Housing Starts Surge -- What Gives?

This morning, we learned that housing starts in May surged 17.2 percent higher than they were in April, which means home builders are starting to build again.

Yesterday, The Ticker reported here home builder sentiment -- what residential developers think about the market -- slipped a bit in May, after it had been rising from its historic low in January.

What's going on?

First, even though the National Association of Home Builders surveys 548 developers to put together its sentiment index, it clearly doesn't reach them all.

Further, there are real regional differences.

For instance, here in Washington, the region has been largely spared the horror of the housing bubble collapse felt in the worst spots in the nation, such as Las Vegas and Arizona.

The Post's Elizabeth Razzi reports this morning in her blog, Local Address, that new home prices are actually rising in the Washington area, where inventory -- or the amount of unsold new homes -- is low.

Nationally, there is about an 11-month inventory of unsold new houses. A healthy equilibrium in the national housing market exists when there is about a six-month inventory of new homes.

Looking at the May surge in housing starts, let's chop up the numbers a bit.

In the western U.S., housing starts from April to May jumped the highest of any region, a shocking 28.6 percent. (Have builders learned nothing from the overbuilt disasters of Arizona, Nevada and California, where they are literally bulldozing unsold, empty new homes?)

The big surge in May housing starts, however, did not come from single-family homes. It came from apartment and condo buildings. Those were up 77.1 percent in May, compared to April.

Steven Ricchiuto
, chief economist of Mizhuo Securities USA, called this morning's news, "The first clear sign of a bottoming in the housing market." He warned, however, "A bottoming in the housing industry is not a guarantee of a return to positive economic growth as consumer savings have shifted permanently higher."

The May spike in housing starts could be, curiously, the result of the waves of foreclosures that have occurred over the past year and are still to come, as unemployment continues to rise this year.

Lots of people over the past few years mistakenly moved out of apartments and into houses they could never afford. When they lose their houses, those people don't just move back into their hold apartments -- they are occupied by others who've grown old enough to get their old places, recent immigrants and so forth.

The foreclosed need a place to live and that may be in new apartments and condos, builders may be speculating.

Bottom line, though, in a market as massive and deep as the U.S. housing sector, it is not incongruous to report dim builder sentiment one day and a surge in starts the next.

As our colleague Elizabeth Razzi said to The Ticker this morning: It's a big country and houses don't have wheels. (Except for those in The Ticker's home state of West Virginia.)

-- Frank Ahrens
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By Frank Ahrens  |  June 16, 2009; 2:17 PM ET
Categories:  The Ticker  | Tags: Elizabth Razzi, Local Address, housing bubble, housing crisis  
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