Wednesday, May 19, 2010

Housing Starts and screaming headlines

Chris often writes about how the media causes confusion among consumers by shouting over-generalized headlines. No surprise, it happened again this week.

On Tuesday The Atlantic reported “Housing Starts Rise as New Permits Fall”, sowing confusion and possibly fear in the minds of consumers. If housing starts are up, that’s good, right? But if new permits are down, that means another crash in home building is coming and that must be bad, right?

Amid that confusion, the reliably Eeyore-like Housing Doom printed an opinion piece that slammed home builders for meeting demand for new homes. They included this chart:

Housing Doom on April 2010 housing starts

Depending on where you focus on this chart, you’re feeling gloomy or possibly hopeful. Or possibly fearful that a slight uptick means a looming second crash.

But wait, what about the underlying housing report published by the government and quoted by The Atlantic? The Atlantic links to it, but inconspicuously, as if the actual data isn’t important. (I fancy myself a smart gal and gave the data a once-over, but frankly can’t understand the statistic-speak that it contains.)

Common sense tells me there’s a couple of things the news media aren’t talking about, that might be quite important here.

1. Home builders are for-profit entities. Surely they’re not building homes that no one buys.

In the Greater Phoenix area we’ve already been through the wave of home builder bankruptcies and I know from personal experience that the big builders left in town (Shea, Ryland, Beazer, Pulte comes to mind) aren’t building homes without a substantial cash down payment from the buyer. On a recent transaction I handled, Shea Homes required a $25,000 cash down payment for a $200,000 home. The way their contract is written, that chunka change was all but nonrefundable! And yes, the buyers I represented looked long and hard at resale homes in the same community before deciding they wanted to a brand new home.

2. It’s a big country. It seems likely that the new homes being built are located in growth cities, not spread out nationwide.

Surely Shea/Ryland/Pulte/Beazer are building where buyers live. They’re surely not building houses in the north suburbs of Chicago (think Skokie, Evanston, Park Ridge) or in the Park Slope neighborhood of Brooklyn, New York. Why? Because there’s no more empty land there on which to build. But in the Greater Phoenix suburbs of Buckeye, Queen Creek and Surprise, there’s some cautious building going on. Because there’s land. And see item 1 above.

Once again media heavyweights, you’ve screamed a headline and sown confusion. Well done. Maybe you should stick to reporting on celebrity divorces and arrests. That requires no thought at all. Tags: