Tuesday, June 16, 2009
The Commerce Department reported(.pdf) a sharp increase in housing starts last month, up from historic lows whose depressed levels are truly difficult to comprehend, prompting the Bloomberg headline "Housing Starts Soared in May".
That's a real stretch of the imagination to characterize that tiny little squiggle circled in red above as having anything remotely to do with the verb "soar", except of course, when viewed in the same context as how a submarine might soar.
Housing starts rose 17.2 percent in May to an annual rate of 532,000 units following a decline of 12.9 percent in April as U.S. homebuilders continue to struggle, faced with stiff competition from waves of foreclosed properties hitting the market, in many cases, priced below the cost of construction.
From year ago levels, housing starts were down 45.2 percent and, from the peak of home building activity in late-2005, starts are down almost 80 percent.
Before getting too excited about the May number, a close look at what it is being compared to in April is in order and easily recalled from this item last month
While April's total is a new record low for a data series that goes back to 1959, that says nothing about just how bad current numbers are in population adjusted terms relative to the lows of prior decades.So, the party hats can probably be put away...
Prior to 2008, the record low for housing starts had been an annualized rate of 798,000 in January of 1991, putting April's new low 43 percent below that mark.
This, in itself, is astonishing, but when adjusted for the roughly 22 percent increase in population since that time, the current level of housing starts is less than half of the previous record low, a full 53 percent below the 1991 record in a data series that goes back 50 years.
Permits for new construction, a leading indicator for the homebuilding industry, also rose in May, up a much more modest 4.0 percent to an annual rate of 518,000 after declining 2.5 percent in April. From a year ago, the number of permits issued was down 47.0 percent and, from the market top a few years ago, housing permits have tumbled almost 80 percent.
At least one of the interview subjects in the Bloomberg report added some important context, helping to offset the error of the headline writers:
“It’s fair to say that we have found a bottom in housing, though the concern is that the bottom is at a very low level,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “We have a long way to go to reach more normal levels of activity.”