They Call This A Housing Recovery?

by Lee Adler, Wall Street Examiner

By now you have heard about last Friday’s blockbuster housing starts numbers that blew out conomists’ expectations. Here’s the actual, not seasonally adjusted data.

Total starts in April came in at 94,900. That was the strongest April performance since the top of the housing bubble. April starts have risen 123% from the April 2009 low.

Housing Starts Booming? – Click to enlarge

That sounds impressive, but 123% of almost nothing isn’t much. Percentages don’t mean much in this market. The whole numbers are more illustrative. Total starts have soared by that percentage because an abominable total of only 42,500 units were built in April 2009. Compare that with the nearly 185,000 units built in April 2005 at the peak of the housing bubble. The current level of starts is just over half that number.

The gain in single family starts was less robust, hitting 60,100. That was 8.7% better than last April’s 55,300 units and it’s up a booming 72% from the 2009 low. But that’s only an increase of 25,000 from the tiny number of starts in April 2009, 35,000. Compare the current number with April 2006 when 135,000 units were started.

Housing Booming? Not Quite – Click to enlarge

So is the housing market really booming? It’s all a matter of perspective. Total starts are still down 49% from the April 2005 level. Single family starts are still down a whopping 60% from the extremes of the bubble in April 2005 (when I put my house up for auction and successfully sold it in 2 weeks).

And the “recovery,” such as it is, may be about to run into real trouble. It’s about supply and demand. They have been growing in tandem, but not this month. In March single family sales fell, but starts rose sharply in both March and April. The divergence creates a record oversupply in the single family market.

Housing Supply Rising, Demand Fell – Click to Enlarge

The last time sales fell while starts were still rising was in 1986, at the onset of a six year housing recession that few recall because the more recent one was so much worse. But those of us who were working in the housing industry then certainly remember it. It was a disaster. Homebuilders were dropping like flies as sales dried up and prices fell.

Maybe the March sales downtick was an aberration due to the weather, as many have claimed. We’ll find out next week when the Commerce Department releases April new home sales data. That is based on current contracts at the time of the survey in mid April. It is therefore a much more timely measure of housing market health than existing home sales which are based on closed sales and are released with a lag of nearly two months. By the time the data is released, it’s stale.

So I’ll be on the lookout for the new homes sales data. If the March decline was not an aberration and sales do not rebound, the housing industry could be ready to tank again.

Not that it ever recovered. New home sales and starts are still approximately 30% below where they were at the bottom of the 1986-92 housing recession. And they call this recovery?