I must confess that I find Jim Cramer entertaining and, on occasion, even illuminating. The key is to Tivo his show and fast forward through the less-than-illuminating parts. That can trim an hour show down to ten minutes or less.
The highlight of Tuesday night’s show was Cramer’s declaration that the housing market had reached bottom. His evidence? Tuesday’s data on housing starts, which came in stronger than expected. That prompted me to take a closer look at the data. Here’s a chart of single-family housing starts since 1970 (when the data begin):
As the chart shows, Cramer may be on to something, at least as far as starts are concerned. Single-family starts bounced around the 360,000 level (at a seasonally-adjusted annual rate) in January through March, rose to 373,000 in April, and hit 401,000 in May. It’s been more than two years since we’ve seen starts increase that much.
That’s good news, but I think we should still expect further pain in housing.
Why? Because starts are only part of the housing story:
- As Calculated Risk has emphasized, a bottom in housing starts does not imply a bottom in housing prices. Indeed, history suggests that house prices may decline for months or even years after housing starts bottom.
- In the near term, furthermore, the macroeconomic impact of housing depends not on the number of houses started, but on the total number under construction. That number is still falling:
Those declines imply that housing will continue to drag on the economy for at least a few months, even if starts continue to show new life.