Housing Really Starts

Said the home builder Joey Ferraro*:
"I'm working like there's no tomorrow.
Though the fiscal cliff looms,
The consumer assumes
It's the best time to buy and to borrow."

The Census Bureau reported new residential construction today for the month of September, and stunned everybody with a 15% increase in housing starts. Ground was broken on an estimated 872,000 homes, versus 758,000 in August. Analysts, the most optimistic of whom had predicted 800,000 starts, were completely surprised; even Jack Welch, maintaining his Twitter silence from the safe distance of Quito, did not cast aspersions on this unbelievable number.

What unanticipated factors led to this surprising result? For one thing, as we read in the Journal today, a gradual improvement in the housing market has reduced the supply of unsold homes to six months, from eight months a year ago. But, aren't the threat of the fiscal cliff as well as tax and regulatory uncertainty putting a damper on economic activity? Not for home buyers, apparently. They appear to realize that, with home prices rising and mortgage rates at record low levels, there may never be a better time to act.

*All Joey Ferraros appearing in this work are fictitious. Any resemblance to real Ferraros, living or dead, is purely coincidental.

Note: this post appeared originally in the Wall Street Journal's Total Return blog.

Own to Rent

Said a real estate vulture from Texas,
Buying properties out of his Lexus:
"Though it hardly may seem
The American Dream,
It's a help in reducing the excess."

Over at The Wall Street Journal, Dawn Wotapka and her colleagues on the real estate beat had a busy Wednesday, as they dug into the implications of strong increases in both new- and existing-home sales in the USA. New homes are now selling at an annualized rate of 343,000, 9.9% higher than a year ago. It's "another sign that the long-beleaguered housing market is in recovery mode," and suggests that "the industry's improvements are widespread." Existing home sales increased 3.4% in April, to an annual rate of 4.62 million, and the median home price has risen 10.1% in the last year, to $177,000. It almost goes without saying that sales volumes and prices are far lower than in the pre-crisis times.

Meanwhile, the Journal's Real Time Economics blog shows the cloud behind the silver lining: "Investors have accounted for about 20% of existing-home sales over the past few years. Speculators are taking advantage of falling home prices and low borrowing rates, as well as the shift from owning to renting. With demand for rental properties rising, landlord incomes increased 15% in the year ended in the first quarter." If losing your home and renting a new one is The New American Dream (as Dr. Goose put it), then investors have been quick to turn the dream into a reality.

Time to Buy a Home?

A house on the market, priced rightly,
Will sell at a pace that is sprightly,
So a backlog that grows
Leads one to suppose
That homes are expensive, if slightly.  

The Commerce Department announced that new home sales fell to 250,000 in February, the lowest number on record.  Moreover, the supply of homes on the market has increased from 7.4 to 8.9 months of sales.  These among other factors prompted investment strategist Barry Ritholtz to ask: "Should You Buy a Home?"  Based on a comparison of home prices and home-owning costs to 1) personal income, 2) renting and 3) US GDP, Mr. Ritholtz concludes that the residential real estate market, though fallen from great heights, is still a bit pricey.