A TIMELY BOUNCE

You can almost hear a collective sigh of relief.
After this morning’s update on housing starts for February, there’s reason to think that a thin ray of optimism is in order when it comes to pondering real estate for 2007. It may be fleeting, but for a few hours, at least, hope has a new lease on life.
The source of the cheer comes by way of the Census Bureau, which reported today that new privately owned housing units rose by 9% last month over January, based on a seasonally adjusted annual rate. In raw numbers, that translates into 1.525 million new starts in February. As the chart below shows, that delivered a much-needed bounce to the battered housing market.
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Clearly, it’s too early to say that all’s well. Even after last month’s pop, it’s not yet clear that the decline that began more than a year ago has bottomed out. Nonetheless, there are other reasons to be cheerful with today’s report, including the fact that the housing starts total delivered a substantial upside surprise compared to the consensus forecast, which predicted 1.440 million units, according to TheStreet.com.
Another bit of encouraging news can be found in the housing-start numbers for the South and West. The harsher winter conditions in the Northeast and Midwest inevitably slow housing related activities. By contrast, the weather is much less of a stumbling block in the South and West. As such, focusing on those areas may offer a better picture of the underlying trends for housing. With that in mind, consider that new housing starts surged 26.4% in the West last month over January; in the South, starts climbed by 18%.
As the last major economic update before the Fed’s FOMC speaks publicly tomorrow afternoon, the housing starts report offers one more reason to think that a cut in interest rates is off the table of possibilities. But while this morning’s news is encouraging, the real estate ills aren’t necessarily over.
A closer reading of today’s housing report suggests that there’s still a fair degree of weakness in the real estate market beyond housing starts. For example, while housing starts jumped 9% last month, today’s report shows that:
* New building permits issued fell 2.5% last month from January’s pace (based on a seasonally adjusted annual rate, as are all numbers below).
* The number of new privately owned housing units under construction last month fell 0.7%.
* New privately owned housing units completed slipped 9.4% in February.
One report doesn’t mean much in the grand scheme of the economy. Then again, optimism and pessimism, bull and bear markets, are created one data point at a time. And for today, at least, the optimists and bulls have a few new reasons to cheer.

3 thoughts on “A TIMELY BOUNCE

  1. theroxylandr

    It will take the housing market 3-4 years to bottom.
    Naturally, with such a slow development you should not expect any dramatic changes in a single month. Every year will be a little bit worse than the previous.
    In housing starts will bottom, say, at 850k in 2010, we should see a decline of maybe 150k-200k every year. It’s too slow to look at February numbers and make any conclusions.

  2. TH

    “You can almost hear a collective sigh of relief.”
    From the peak on the Housing Starts chart of over 2,200, I count four times where the downward trend was momentarily interrupted, taking us to today.
    I guess JP would call that 4 collective sighs of relief.

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