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Location: Mars Hill, NC, United States

A small, highly personalized real estate firm specializing in mountain homes and land in greater Asheville.

Wednesday, June 17, 2009

Behind The Headlines: Housing Starts-May, 2009

There was noise this week about a 17% "surge" in housing starts. Our reaction was like, "Wait a second, that makes no sense, new home inventories are huge already, must be some quirk in the data."

So What Really Happened?
Single family starts are but one component in the larger data series that was reported, although it is the most important segment there. Something accounted for the rise, but it was not the single family units.

The single family sector for May is actually 41% less than last year at this time. It did rise, by around 7% over April. A rise May over April is normal, and as we have often noted month to month comparisons are meaningless when reported as stand alone items.

Credit goes to Diana Olick of CNBC in her article entitled High Housing Starts Don't Reflect Reality:
First of all, the biggest part of the gain was in multi-family, up 61.7 percent month to month, but that’s after falling 49 percent in April.
To any observer of housing numbers, this should be no surprise. The multi family sector is notoriously volatile and has an occasionally disproportionate impact on total numbers.

We covered this very phenomenon last May. A rise in multi family construction, unaccompanied by an increase in single family starts, cannot be called a sign of a normal, healthy real estate market.

There are more quirks in the data such as the sampling, and margin of error to explain this erroneously reported rise in housing starts. These are covered by Barry Ritholtz over at The Big Picture, who also takes Jim Cramer to task for having proclaimed yet another bottom on his TV show.

For greater context, Calculated Risk has a graph of housing starts from 1968 to the present, we remain somewhere around record lows for one unit structures.

There you go.

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Filed Under: Real Estate Statistics and Data

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