Encouraged by Plummeting Housing Starts

We’re confused this morning… help us understand this mess.

Initial construction of new homes in the U.S. fell to the lowest level on record last month, the Commerce Department announced early today. Housing starts in April fell 12.8%, to an annual rate of 458,000, the worst since at least 1959, when the government started keeping track. Applications for building permits fell to a record low as well.

Here’s what we don’t get: The market hates this. Futures were aiming for another day in the black early this morning, and then reversed seconds after the numbers were announced.

But we see the housing starts number as an encouraging development. In the worst housing crisis of our lifetimes – with a 9.8-month supply of existing homes on the market and a record 342,000 homes in foreclosure in April alone – who in their right mind is starting construction on a new house?

If the biggest hurdles in ending the housing crisis are price discovery and clearing supply, and if true recovery is a curtailment of home price expectations and a return to living within our means… why are record low housing starts a bad thing?


At this stage, isn’t the best possible housing start number… 0?

The Daily Reckoning