Housing: A Drag on the Economy

The Lehmann Letter (SM)

There are three key reports on housing released each month: the Census Bureau's estimate of housing starts, the National Association of Realtor's bulletin on existing-home sales and the Census Bureau's figure for new-home sales.

The housing starts and existing-home numbers are out, and they are terrible:

http://www.census.gov/const/newresconst.pdf

http://www.realtor.org/press_room/news_releases/2011/03/feb_decline

February housing starts fell to 479,000 and February existing-home sales fell to 4.88 million. Both are seasonally adjusted annual rates.

These are clear setbacks, and the housing starts number is reminiscent of the depths of the recent recession.

New-home sales will be out tomorrow, and this letter will report on those. There is a good chance they will reinforce the dismal impression created by the earlier reports.

What's wrong?

The problem is that the federal government has not dealt adequately with the housing crisis. That crisis has been permitted to fester since residential real estate began its long slide into oblivion several years ago. The nation has allowed the market to find its own bottom without sufficient remediation from the effects of that bottom. Now we have the consequences: Widespread foreclosure, depressed home prices and rock-bottom construction activity.

The economy can't become robust until this problem is behind us. And at this rate the problem will be with us for a while.

More tomorrow.

© 2011 Michael B. Lehmann