This is good news? May housing starts jumped 17.2% :Update

Housing starts increased 17.2% to a seasonally adjusted 532,000 annual rate compared to the prior month, the Commerce Department said Tuesday. Building permits rose; apartment construction surged.

The 17.2% increase was much bigger than expected. Economists surveyed by Dow Jones Newswires forecast a 7.0% increase to an annual rate of 490,000.

via May Housing Starts Jumped 17.2% – WSJ.com.

We have a backlog of unsold homes of 10 months; prices probably haven’t hit bottom, unemployment is rising —  yet but builders are still throwing up new houses? Shouldn’t those construction workers find gainful employment by either tearing down foreclosed homes in zombie neighborhoods or fix up homes where there’s life? New homes?

The pick-up in starts is certainly a function of lower mortgage rates and government (and private) incentives to home buyers — like the $8,000 tax credit for first-time buyers. It’s a here-we-go-again moment: too much money chasing the wrong thing. To sop up the excess supply, the credit should be for anyone buying only existing homes, not new ones. Or credits should go to people who need to repair or expand their homes (perhaps to add a home office in the new “gig” economy).

Homebuilders like Toll Brothers are posting big losses as they write down the value of land and homes bought at the peak of the real estate mania — but they still have cash. What’s a builder to do?

Too much cash was the problem in the last market go-round. I say let’s call a moratorium on building new homes — or at least build very selectively — until we clean up the current mess.

Update: A number of market analysts have noted two important factors in the May housing starts numbers: first, they are extremely volatile, and second, that this month’s numbers got a big lift from apartment building. But the multi-family sector may be even weaker than single-family home sector. Anyway you slice it, in order to fix the economy, we need to soak up the excess supply of homes already sitting on the market. Home starts are down year-over-year about 45% — but that’s not enough.

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