News out this morning – Housing Starts up 15%. What a whopper of a number…Unbelievable.. In our previous post, we hinted at the election season having some impact on the numbers coming out about the state of the economy. Again, we have no proof of any fudge, but you just have to wonder about some of these numbers. (Disclosure: I’m an independent voting for Obama).Objectively speaking, we seem to be hitting 4.5 year highs or “best” numbers as we are approaching the elections, which sounds just a little strange to me.
Housing Starts up 15% is such a huge number, Zerohedge called it a “6-sigma” event. The number itself is quite startling – 872,000 new homes on an annualized basis. Consensus expectation was around 800,000. All big builders were immediate to declare “the bottom is in”. Obviously, its simply too early to say this definitively, but its encouraging news indeed for the battered sector. The chart (courtesy Zerohedge), shows that we’re still 33% off from our 10-year average of 1274,000. Maybe the 10-year average is something we should not be striving for, since this was exactly the kind of frenzy that put us into a bubble territory. Low interest rates, dwindling supply of existing inventory, foreclosures, and population growth were all responsible for a higher number. Of course, this is also great news for the construction industry which has seen 2 million jobs being lost since 2007.
But there are some things I don’t understand – There are way too many foreclosures that are simply sitting on the books of Fannie, Freddie, the banks, and the Fed’s balance sheets when it buys up mortgage securities. I’m not an expert on this matter, but in simple terms, this is what I suspect – foreclosures have been backstopped by the Fed or the government agencies of Fannie / Freddie. This is similar to stuffing the value of these properties under the carpet, and telling the banks to just go out and create new stuff. Of course, banks are much more careful this time with their lending practices, but what happens to these millions of foreclosed properties ? Do the banks own them or do the government agencies own them ? I thought the Fed bought up all this toxic crap from the banks. What do they plan to do with them ? I don’t get it – but maybe some of you do. Kindly weigh in with your expertise.