A jump in housing starts is NOT good news for the economy…

Here is a quick rant so prepare yourself…

And here is exactly why stock markets are so backwards.

The news…

“The Commerce Department said housing starts jumped 22.2 percent to an annual rate of 583,000 units last month from 477,000 units in January. It was the biggest percentage rise since January 1990 and the first gain since April.”

“But compared to a year ago, housing starts had slumped 47.3 percent in February and permits were off 44.2 percent.” SOURCE.

Yes, this is a leading indicator “hinting” that housing has bottomed out. Yes, this is good news for some. Home Depot stock went up because of it. But this really isn’t good news for homeowners…

Why?

Housing Inventory is still high. Yes, home builders need to build if they want to stay in business. Yes, they need to build homes in advance of need. Yes, housing inventory has come down from 11 months of supply to about 9 months of supply. But it’s still too high! For the housing market, 6 months of inventory is the generally accepted amount where supply equals demand. We need demand to outstrip supply if we ever are to hope for a price increase in our home values.

Home builders are getting desperate and are jumping the gun. They are hoping that demand for houses will take off in the spring and summer months. (The much talked about second half recovery). I am pretty confident that the demand won’t be there and they are just making things worse by ramping up production again.

Here’s the real news on the street…

I have a friend who has placed 4 bids on foreclosure properties. They have all been turned down for cash bids put in by investors. She would have had to finance the house.

What’s the lesson?

Foreclosures take a lot more work than your average home owner is willing to put up with. Many of those homes are trashed and need repairs or major cleaning, etc. She is one of the few who is willing to do the work and has extra cash to pay for repairs. Most homeowners don’t fit into that category.

The only people really buying now are new homeowners who will take the $8,000 credit. Existing homeowners probably won’t be trading their house for another one because they are underwater or because they refuse to sell for less than they paid for it.

There is still a lot of “false” demand (created by the stimulus and cash ready investors) on the market and a large amount of “phantom” inventory (homes in some stage of default that are not listed on the MLS)  not on the books.

Those two things are two totally different stories and would make my short rant WAY too long and not so quick at all so I’ll leave you with this…

PLEASE do yourself a favor and educate yourself. Don’t take what you read in the news at face value. And remember that what is good for the stock market isn’t always good news for YOU!

Here’s to being educated about the economy,

Jeremy

p.s. Have you been watching these shows with Jon Stewart and Jim Cramer on The Daily Show? If not, you should!