CNN has the following crawl up:
Housing starts surge 17.2 percent in May; building permits creep up percent.
Now when I ask this question, remember that I am working from a point of ignorance when we talk about the economy. My question is why would housing starts surge so much in May when we have a glut in the housing market? I keep reading at Calculated Risk about the large housing inventory, the number of foreclosures swamping the market, whole condominiums up for sale without even having gas and electric hooked up yet, etc. Why would production be ramping up if all this inventory is out there?
*** Update ***
Should have checked CR before I posted. They have a thread up already about this.
Shygetz
Because if you have a hammer, you look for a nail. Home building is many peoples’ livelihood; they gotta do something. Some of these people are probably taking the economy’s “green shoots” as cause for undue optimism.
Tokyokie
The rates on 30-year mortgages hit their low in May, and, keep in mind, the base from which the increase is measured was already severely depressed. My question would be whether these are single-family or multifamily housing units.
schrodinger's cat
I am guessing it probably has to do something with geography, there may be a glut in some regions of the country while there is scarcity in others. If the housing starts jumped up where there was already a surplus that would not make sense.
peach flavored shampoo
Being only half-joking, I suppose it’s this: developers have commercial loans that demand they start a minimum of “x” number of houses/month. Perhaps they have contracts as well with sub-contracters to use them “x” times/month as well.
Shorter: too many gears in motion to shut down homebuilding despite the glut. I do agree, however, that CR is always talking up the glut, and you’d think supply/demand rules would take over, but it hasnt.
OT– can we get a naked Pam Anderson replaced with a likewise naked Ann Coulter? Thanks.
taylormattd
Maybe it’s commercial building starts? I don’t know.
Gus
You should take your question to a thread on CR, but I would guess the “surge” is over some previously dismal numbers and is a far cry from signaling a new boom.
PeakVT
1 would say that 1) the excess inventory isn’t uniformly or even widely distributed and 2) we’re bouncing along the bottom – YoY is down ~50%, and there is always some noise in the data.
cgp
Keep this chart in mind, it’s still 45% down over last year. It is for all housing starts, no commercial property, that bust is in progress yet. Single family structures are up 14% from last month, but still down quite a bit overall.
http://www.calculatedriskblog.com/2009/06/housing-starts-may.html
There is still a lot of inventory, but the fact is, people LIKE NEW HOUSES. :)
clone12
That’s 17 percent from last month. There is a good chance it’s just part of the month-to-month noise.
On the other hand, the large housing stock overhang does not neccessarily have to clear out before housing starts pick up. For example, the glut of housing in Riverside will not stop housing construction in Dallas if enough move from one state to another.
Don
Lies, damned lies, and statistics.
Bold mine.
When you drop 50% of your value, from 100 to 50, having a 17% rise means you just go from 50 to 58.5. Making this more so-what is the fact that APRIL had a 12.8% decline.
I’m all for good news, but I’d bet this has a lot to do with an improvement in weather. If you’re not building as much and the market will allow you to wait, why not wait till it improves slightly and your workers are more productive?
geg6
I am with you, John, in my complete puzzlement over this. Housing starts? Really? When there are stories ad infinitum about entire neighborhoods of abandoned homes? Insanity.
MikeN
We are experiencing a similar boomlet out here in Kansas, but our local Home Builders Association doesn’t see anything in it other than the weather cleared up and summer construction has begun.
Remember also that existing inventory was built at a post collapse cost. Why buy an existing home from an over leveraged homeowner that needs pre-collapse money to get out, when you can build new…to your exact specifications, for 70% of the cost.
Nannergrrl
In reality, though there are many foreclosures occurring, those properties are not all “on the market” as the paperwork is overwhelming mortgage firms. An example of what is going on in our section of Colorado: there is a house two doors down from us that the owners left back in September – they hadn’t paid a dime on the mortgage in at least 6 months prior to that. Only now is it being fixed up for sale but has yet to be advertised on the market.
My husband and I bought a home last summer that was in foreclosure. The mortgage company didn’t acknowledge our existence or our offer on the place for 14 weeks, at which point we were given a closing date/time that was to occur in the following 48 hours. At that point, we had already sold our home and negotiated with the owner of the foreclosed property to move in. We had been living there for two months without the mortgage company knowing about it.
TLDR: If people need need a home and are on a time line, foreclosed properties are NOT fulfilling that need. Newly developed properties do.
Bill E Pilgrim
To John Cole: Since that photo of Pamela Anderson went up shortly after I started reading this blog, and I’ve never seen a picture of you, and I see that one so often now, I’ve now formed an association to the point where I actually think of that image as what you look like.
This wasn’t intentional, mind you, it just happened.
If you’re okay with that, fine then. Just letting you know.
Punchy
Quit trying to spook the market, Cole. I’ze gotz me some daytrades that need to mature.
Oh, and green shutes, bitches.
Comrade E.B. Misfit
In many states, builders need to get a lengthy series of approvals to build a house and, if construction is not begun, the approvals expire.
These “housing starts” might be a “shovel in the ground” to preserve the right to build once the economy improves.
Notorious P.A.T.
*gag*
The Other Steve
Guy on the radio said this is 17% up from April’s numbers.
But April’s numbers were the worst since WWII.
Anoniminous
General Rule: When the Financial Press starts throwing percentages around it’s a good idea to run a rough computation of the underlying ‘real’ numbers.
Looking at the numbers the difference between April/May is 78,000 homes projected to be built in 2009 in May than was projected to be built in April — that’s what “annualized” means. [Note: “projected” equals “guess.” ;-) ] An “annualized” 532,000 homes starts works out to around 4,333 homes a month.
In other words: dippy-whoop.
Second, housing construction always jumps in April/May due to the fact it’s a heck of a lot better to build homes, or at least put up the shell, in the mid-West and Northeast May-September when it’s warm than in November – April when it’s freeze your butt off time.
Going meta, real estate is driven by demographics. In other words: people move. They move for a number of reasons: jobs, retirement, to be next to mom-in-law, to get away from mom-in-law, & so on. It’s perfectly possible for people to move from an area with a surplus of housing to a location with a lack of housing.
National statistics don’t necessarily predict or reflect local conditions and that’s where houses are built.
Finally, note even the revised figures are about 75% lower than the 2007 figures and a bit above 50% lower than 2008. Meaning the housing construction industry is still in the doldrums.
The Other Steve
That pam anderson ad is as creapy as the curve cartoon ad. Strange women with bizarre extra appendages sticking our of them.
lutton
If it’s 32º outside – freezing – and temperatures ‘surge’ 17.2%, guess what? Now it’s now 37 1/2º and still damn cold.
In other words, while starts have increased, the previous numbers were so low that 1) it be hard not to increase, and 2) any increase would look significant when described in %.
Total starts are still tremendously low compared to any other point in the last 40 years, as seen on that CR graph:
http://1.bp.blogspot.com/_pMscxxELHEg/SjeQ-G_ndzI/AAAAAAAAFiA/QqDZvqvRN8o/s1600-h/StartsMay2009.jpg
They’re still off what looks to be close to one-third compared to the next lowest period, back in 1991.
OriGuy
Just saw The Hangover. Hilarious.
Year-over-year is the relevant statistic.
mclaren
Good question. Especially when U.S. cities may have to be bulldozed in order to survive.
My guess? Corporate media spinning the numbers to prop up failing public confidence.
DanF
@Bill E Pilgrim:
I just want to know why Pam has an arm coming out of her vagina …
HyperIon
I read the CR post and didn’t see where they explicitly accounted for the increase. Perhaps comparing to last May would be better…and less ZOMG-inducing.
However, I have a question for the crack finance and econ folks here. What caused the big rate bump over the last two weeks (about a half a point for 30 and 15 year fixed rate mortgages)? I’ve seen a couple of references to it but nobody offering an explanation.
PhoenixRising
John, If you had tried to purchase a foreclosed home, or knew anyone who had, you would understand that ‘the foreclosure crisis’ and ‘housing starts’ are as related as rocks and hummingbirds.
Yes, we’re drowning in excess housing. This housing all shares the problem that no one can make the bank whole in exchange for living in them, which is why it’s been foreclosed on rather than sold into a market.
So until the banks stop smoking joints they lit with hundreds the Fed dropped on them from helicopters, and book the losses they incurred in 2004-2007, prices on foreclosures aren’t going to get competitive.
Meanwhile, contractors in the carpentry, plumbing, concrete, HVAC and electrical fields are on food stamps.
p.a.
month-over-month stats can be misleading, especially on seasonal items. CR has often made the point that housing is best looked at year-over-year, i.e. May 2009 v. May 2008 etc. Bonddad’s blog does nice work on financials usually with 3-month averaging; take months 1-2-3 and plot the avg, then months 2-3-4, 3-4-5 etc., called SMA’s; standard moving averages.
p.a.
alternative theory: Green Shoots!
nah…
J Bean
My parents just put their house on the market and got three offers in one week. Another person I know has been threatened with layoff since October, it’s still hanging over her head, but it keeps getting pushed off by a couple of months. Someone else I know said that he was working 1 day per week this winter, but lately he’s been working 3 days per week, so things seem to be getting a touch better here in southern California.
Derek Young
Same reason foreclosures drag down home prices. Bank owned lots are still a part of the market and they’re going for bargain basement prices. So cheap in fact, that some owner-builders and spec builders with a couple bucks still laying around, see them as cheap enough to wade into.
To put it another way, in my market lots that were developed and left vacant when the crash came were going for $130k. Now those same lots are on sale for $40k because banks are desperate to get them off the books and willing to take a loss.
To me it’s not all that different than people picking over existing home foreclosures. It’s not a sign of economic health. Just a sign that the bloodletting got to a logical point where some lot absorption was possible.
I wouldn’t take this to mean much at all.