Wednesday, August 19, 2009

Watch me make this recovery disappear

Wednesday August 19, 2009 – Issue 3574
The King Report

By Bill King

The financial media’s ineptness was illustrated yesterday when most heralded the slight increase in housing starts as a sign the economy has turned – even though the metric was worse than expected! We have brayed since the housing bubble that housing starts are NOT a sign of economic strength when they exceed sales and the US consumer is losing jobs and income. We asserted that housing starts in excess of demand are a sign of easy credit and illustrate the concept of Austrian Economics. July Housing starts are 581k. June New Home Sales are 384k; 388k is expected for July. ~200k houses will be added to inventory. Is this a sign of recovery or a sign of excess credit and supply? Jobs, income, credit, bankruptcies, NODs, foreclosures, inventory and organic housing sales are the key factors in the economy and a housing recovery. Housing starts are now irrelevant unless the workers building the houses are buying the houses. (Pay the man Shirley. -AM)Mark Hanson notes a negative for housing that few, if any analysts, have mentioned. Due to the decline in jobs and income and “without exotic financing, buyers can’t reach out of their affordability bands like they could from 2002-2007. Investors won’t reach out of their rental return band in order to chase a bid. This dynamic has isolated millions of houses above the median income/rent ratios in cities across the nation and will lead to significant house price compression.”

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