Has Housing Reached Bottom?

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.

About Donald Marron 294 Articles

Donald Marron is an economist in the Washington, DC area. He currently speaks, writes, and consults about economic, budget, and financial issues.

From 2002 to early 2009, he served in various senior positions in the White House and Congress including: * Member of the President’s Council of Economic Advisers (CEA) * Acting Director of the Congressional Budget Office (CBO) * Executive Director of Congress’s Joint Economic Committee (JEC)

Before his government service, Donald had a varied career as a professor, consultant, and entrepreneur. In the mid-1990s, he taught economics and finance at the University of Chicago Graduate School of Business. He then spent about a year-and-a-half managing large antitrust cases (e.g., Pepsi vs. Coke) at Charles River Associates in Washington, DC. After that, he took the plunge into the world of new ventures, serving as Chief Financial Officer of a health care software start-up in Austin, TX. After that fascinating experience, he started his career in public service.

Donald received his Ph.D. in Economics from the Massachusetts Institute of Technology and his B.A. in Mathematics a couple miles down the road at Harvard.

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