New housing starts data
It must be noted that traditional news outlets continue to take housing stats out of context and call it good news or bad news without looking at all the pieces of the puzzle. Today, the U.S. Commerce Department released permit data and housing starts numbers for May (which look good), yet the National Association of Homebuilders (NAHB) released their builder confidence study for June which took a nosedive. Regardless, talking heads are saying in one day that permits are up so housing must be stabilizing yet on another day saying that builder confidence is down and we’re in for a bumpy ride. The truth is that the pendulum is still swinging and there are signs of national housing stabilizing but we’re still experiencing the bounce so we can’t say for sure one way or another (although we can say housing is currently a mess).
Permits for housing construction rose in May at the highest rate since December 2010, up 8.7% from April while construction of single family homes rose nearly 4%, both numbers beating economists predictions. Projections were for a continued dip in permits and starts, but with a blip up, all eyes are back on new home construction which is showing signs not of a healthy recovery but of a possibility that it might survive.
There is a major difference between recovery and survival, just visit an emergency room to see for yourself what a recovery from a sprained ankle looks like versus someone who just survived a massive auto collision- one wasn’t bad to begin with while the other was nearly catastrophic and doesn’t make any promises for what the long term recovery will look like (but you know it won’t be pretty).
Builder confidence levels contradict
Traditional news outlets are calling builders “hopeful” but the NAHB reports that after six months of builder confidence numbers “holding low but steady,” June saw a decline of three points in the builder confidence index with the biggest dip being in builders’ expectations of their sales over the next six months. That’s a far cry from hopeful, that’s a very conservative view that is less than optimistic and is in the full swing of survival mode. Remember, the U.S. Commerce Department is a month behind the NAHB survey, so the sentiment is more current than the building stats.
“Builder confidence has waned even further as economic growth has stalled, foreclosures have continued to hit the market and the cost of building a home has risen,” agreed NAHB Chief Economist David Crowe. “Meanwhile, potential new-home buyers are being constrained by difficulty selling their existing homes, stringent lending requirements, and general uncertainty about the economy. Economic growth must pick up in order for housing to gain the momentum it needs to get back on track.”
Various news anchors continue to point to foreclosure data as a sign of a recovering housing market and continue to fail to see all of the moving pieces. It is true that RealtyTrac data out this morning reveals an eighth month in a row of declines with filings dropping 2% from April and an impressive 33% year-over-year. The number of homes actually repossessed in May fell 4% from April and 29% year-over-year.
These numbers look good, but don’t take into account why this process has slowed down. We’ll give you a hint- it isn’t because employment is any better or because consumer confidence is up. No, it’s because the big banks have kinked the hose of the flow of foreclosures in light of the robosigning debacle (where banks didn’t manually review documents before foreclosure leading to illegal foreclosures on wrong addresses, homes paid in full and various other mistakes) as many states attorneys general and federal agencies are investigating the banks’ processes, putting a hamper on how quickly papers are/were being processed.
James Saccacio, the CEO of RealtyTrac, agrees, saying that the declines are likely due to lingering effects of the robo-signing scandal, which broke last September.
When the robosigning scandal is laid to rest and manual review of foreclosure documents are implemented once again, the kink in the hose will be released and the market will see an increase once again, consisting of the backlogged foreclosures.
Media, you can’t keep making soundbites
CNN Money called the housing starts a “glimmer of hope” for builders but is dead wrong. Builder confidence levels (along with the entire new home construction picture alongside housing as a whole) are down and builders don’t believe sales will do well this year. “Glimmer of hope” is so far off, it’s not even funny. Traditional media, you can’t spin individual housing stats into soundbites, it’s like grabbing a number in space- there’s no context or regard for the bigger picture.
Traditional media has never been more disconnected from reality when it comes to housing and their continued use of a single stat as a soundbite translated into good or bad as they arbitrarily see it without regard to hundreds of other moving parts is simply irresponsible.