Making Sense out of New Housing Production Rise Figures
Today the US Commerce Dept. announced that production of new housing has risen 8.9% in November. This news were immediately heralded as great signs of a recovery in the housing market, but is it really?!
This could be seen as a positive sign, but for what? What this National statistics figure means, at best, is that developers are increasing production, which could be an indication of their confidence in the market regrowth, however this is by no means a direct indicator of any improvement in the market itself. What is an indicator is the rate of sales.
This is not to say builders are necessarily wrong in their confidence, but there is certainly no direct correlation to objective market conditions. It is important to take these news with a grain of salt, or maybe a pinch. After all the reason developers ended up in a slump with an excess inventory was because they miss-calculated the projections of the market in the past, and what it was going to support. If the confidence of developers turns out to be misplaced, it would only cause a further worsening of the market as it gets overloaded with even more excess inventory. We all hope their instincts are correct.
Either-way, what is more important is to study the stats beyond the sensational headlines. If you do, you realize that even this number, touted as the best thing since sliced Melba toast, falls short of the expected by analysts. Also, construction starts of single family homes only rose 2.1%. The improvements where mainly in the multi-family construction rates, rising by 67.3%. This shows where developers believe the future of the housing market lies.
As to the stats that actually indicate the state of the real estate market directly, the Center for Economic and Policy Research (CEPR) provided interesting stats compiled from Oct. 09. Pending home sales rose 3.7%, marking a slowdown from August and September, but still a positive trend. New home sales increased by 6.2% Nationally in October, which is a very welcome turn from the previous downward trend. In fact October pending homes sales were 31.8% above last years levels!
It is however important to put recent rise in sales in the context of the 2009 tax credit expiration deadlines. It is believed by most analysts to be directly attributed to this deadline. In fact the performance of sales over the next few months will probably be likewise skewed by the 2010 tax credit, with its end of April 2010 deadline.
Either way, though be it incentive or not, the fact that sales are rising is a positive one nevertheless. If we are to assess market trends correctly though, we would have to take a longer view of the market. It is likely the actual change in the market may take as long as 6 months to be indicated definitively.