Reuters and reporter Lucia Mutikani went way overboard today in reacting to today's residential construction news from the Census Bureau.
Mutikani's headline contended that today's "housing data signals economic strength," while a section title claimed that there are "strong housing fundamentals." That can only possibly be true if one believes the world began in 2007.
Here are several paragraphs from Mutikani's mush (bolds are mine throughout this post):
U.S. housing starts in November rebounded from a seven-month low and permits surged to a five-month high, signs of strength in the housing market as the Federal Reserve starts hiking interest rates after years of easy monetary policy.
Groundbreaking jumped 10.5 percent to a seasonally adjusted annual pace of 1.17 million units last month, the Commerce Department said. Building permits vaulted 11 percent to a 1.29 million-unit rate, the highest since June.
With permits running ahead of starts, home building is likely to remain supported in the months ahead.
... November marked the eighth straight month that housing starts remained above a 1-million unit annual pace, the longest stretch since 2007. Economists expect starts to average around 1.1 million units for 2015, which would be the highest since 2007 and up from 1.0 million in 2014.
... Robust household formation as labor market strength encourages young adults to leave their childhood homes is underpinning the housing market recovery.
But the sector remains constrained by a persistent shortage of houses for sale.
November's double-digit increase in overall housing starts is impressive only if one conveniently forgets the double-digit decline in October. Even considering the improvement in permits, it's worth questioning whether November was a short-lived, one-month rebound, or at best a return to a painfully slow (in historical context) improvement path.
How Mutikani can believe that "robust household formation" is "underpinning the housing market recovery" is a mystery. The most recently available information from the Census Bureau indicates that well over 90 percent of new household formation is among renters, not owners:
The reason there is a shortage of new and existing homes for sale is that there is a shortage of genuinely qualified and/or interested buyers. What's the point of trying to sell if no one is going to buy?
Getting back to new homes, the fundamental point Mutikani is ignoring is that the homebuilding industry remains mired in an historically serious slump. Just look at how actual single-family housing starts during the first 11 months of this year compare to the first 11 months of every other year such data has been published (years during the which the economy was in an officially defined recession for six or more months are highlighted in yellow):
Though 2015 is definitely going to end up with more starts than 1982, it will probably end up slightly lower than 1981. Some "recovery"; this year's figures are for a nation whose total population is about 40 percent higher than it was during those two years. If the table above were adjusted to reflect each year's population, i.e., single-family starts per million residents, 2015 would be worse by miles than any year — including all years during which the economy was in recession at least half the time — from 1959 to 2007. In other words, this year only looks okay compared to the previous seven, which have been unprecedentedly awful.
Bloomberg's Victoria Stilwell also drank the koolaid:
Supported by growing payrolls and a low level of layoffs, demand for housing has strengthened over the past year as more Americans now have the means and the confidence to invest in a home.
For heaven's sake, Victoria. At best, there is "confidence" to rent an apartment or home. As seen in the first graphic above, the cadre with the "confidence to invest" or remain invested is barely growing.
Surprisingly, the only reporter at the three major business wires who had a sense of historical context was Josh Boak at the Associated Press, who wrote of the current overall level of starts (single-family and multi-unit):
Still, construction is recovering from the depths of the Great Recession as starts remain short of the 1.5 million rate that housing sector analysts associate with a healthy market.
Though I would argue that the benchmark should be about 20 percent higher than Boak's 1.5 million, he's exactly right in asserting that the market is not "healthy." If the current rate of improvement continues, which seems doubful given how weak many other economic metrics have been, we're over two years away from even his diminished benchmark.
Cross-posted at BizzyBlog.com.
