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Opinion, commentary and analysis on everything that makes the U.S. housing economy tick -- not to mention the ghosts in the machine, too. Written by HW's team of editors and reporters each business day.

Truth is, those recent housing numbers aren't so shiny

Housing starts? More like housing stops, amirite?

August 19, 2014
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The mainstream financial media have something to sell you.

It’s optimism. Or optimistic spin.

It doesn’t matter whether they are servicing, in the "old profession" sense of the word, their Wall Street sugar daddies and insider connections, or working as palace guards for Team Red and/or Team Blue, whichever they favor.

In some cases it’s just overworked writers promoted Peter Principle-style to covering subjects they don’t understand. The rest are market cheerleaders who believe in management of perspective economics – if people hear enough good news about the economy, they’ll spend and invest more.

Today’s housing starts and permits report from the Department of Housing and Urban Development is a prime example.

Take a quick look at the bulk of the headlines. Note the words soar, surge, jump and so on.

Click the image to enlarge.

And here are the plain facts. After plunging in June, housing starts and housing permits recovered in July, printing at 1,093,000 and 1,052,000, respectively.

And yes, this is a 15.7% gain in starts and permits.

The bad news is that almost all of those gains from June to July in starts and permits are in multifamily rental housing.

That’s not the sign of a housing recovery. That’s the sign of a shift from an ownership society to a rental society.

In permits, almost all of the increase was due to multi-family unit construction, which soared by 73,000 to 382,000, a 24% increase, while single-family residential permits were up by just 6,000, or less than 1%.

And technically, apartments can be homes, but come on. That’s not what they mean when they say things like:

Construction on new U.S. homes jumped 15.7% in July to the highest level in eight months and starts were revised up sharply for June, indicating a pickup in home building after an early-year lull.

Emphasis mine.

And it’s not just the mainstream financial press. Check the wording in this report from Capital Economics.

“The sharp rise in housing starts in July is an encouraging sign that the recovery in construction activity is getting back on track. Booming homebuilder confidence points to further gains to come.”

If you’re feeling déjà vu, there’s a reason. Words to this effect are used every time there’s an uptick in housing starts, pending sales, and existing sales, while every downturn is blamed on everything from the weather to the weather.

It’s never, ever blamed on the tepid economy and the part-time job market that’s the new norm.

A few out there get it.

Brent Nyitray, director of capital markets for iServe Residential Lending, notes that, “Can't complain about the number, which was the highest in eight months. Still, ‘normalcy’ is around 1.5 million units per year, which goes to show how depressed housing still is. We probably will not hit historical numbers until the first time homebuyer returns.” 

And that won’t happen until jobs return, and the last couple of monthly jobs reports heralded in the media have been heavy on the part time and low income jobs, and light on full time and middle class.

Retail, wait staff and home health aides accounted for 41% of the positions created over the past couple of years, according to the latest figures from the National Employment Law Project, a left-leaning advocacy group who may be wrong on the minimum wage issue but they’re right that you can’t have a strong economy without strong job growth. (Their solutions are the stuff of college dorm room discussions, but there are better solutions to better job creation than the weak sauce we’ve seen from this administration and Congress.)

Meanwhile, medium-wage manufacturing jobs accounted for just 26% of the new jobs, while white-collar industries generated 33% of the new jobs.

As CNBC notes, since the recession ended, lower-wage jobs have grown by 2.3 million while medium- and higher-wage jobs actually contracted by 1.2 million. This is in line with the ground-losing 2% wage growth the job market is seeing.

Now you see why the big gains in housing starts and permits are pretty much concentrated in apartment construction, not home building.

And you see why housing won’t get its footing back until private enterprise and the economy as a whole is unshackled and unhobbled.

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