Wednesday, March 18, 2009

Rising New Housing Permits: Bad for Economy.

“U.S. housing starts in February unexpectedly snapped the longest streak of declines in 18 years, raising optimism the market may be finally finding a floor.

Work began on 583,000 homes at an annual rate, a 22 percent increase from January that was propelled by a surge in condominiums, apartments and townhouses, Commerce Department figures in Washington showed today. A separate report showed gains in producer prices slowed, underscoring a lack of inflationary pressures with the economy in a recession.

Wall Street stocks took heart from the data and rallied throughout the session, with the Dow Jones industrial average closing nearly 2.5 percent higher at 7,395 points.”

This news does not bring in optimism for me. For me the leading indicator of the Housing bottom would be “Existing Home Sales” rather than “New Housing Permits”. With Existing Home sales in the declining trend, the increasing number on New Home Permits brings in a more gloomy economic picture.

Soon there may be more homes in the market with no buyers and the housing prices would drop further. It’s certainly not in the best interest of the US economy to provide Housing Permits in today’s scenario.

I suppose these new homes would hit the market a year or so. So the existing glut of existing homes needs to be cleaned up way ahead, to see some price stabilization.

We are certainly very close to the housing bottom but things can get worse with increasing New Housing Permits and rising defaults on credit cards payments.

No comments: