The Commerce Department reported Tuesday that housing starts increased 17.2% to a seasonally adjusted 532,000 annual rate compared to April. The financial markets responded favorably interpreting this as a sign that the housing market is bottoming. But is it?
Housing starts are a measure of new construction starts, not sales. We currently have on average, a 10 month supply of unsold homes and have been at that level for almost 2 years. Housing prices will not stabilize and the market will not recover until we shrink that inventory level down to a more normal 4 to 5 months.
With an untold number of foreclosed homes still remaining to be brought to market do we need to add new construction to the mix? I think not. We already have more homes than we have qualified buyers for. Let's get the existing inventory reduced before we starting building again.
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