Are Falling Housing Starts Really A Bad Thing?

That was the question posed to me on my radio show this morning by a caller.  The futures were up about 1/2% before some economic data came out at 7:30 CST.  Housing starts were supposed to be 520,000 for April based on estimates, up from 510,000 the previous month.  Instead, housing starts fell and were actually 458,000. 

housing starts

The futures immediately sold off and the markets have been under a slight bit of pressure all day.  Why would investors sell based on lower housing starts?

At first glance, you would say that it’s bad news because we want to see improving economic data every month.  The bigger issue though is the fact that it’s the multiplier effect.  If a house isn’t being built, then there isn’t a closing, there isn’t someone getting cable television hooked up, they aren’t buying a new refrigerator, they aren’t buying a new lawn mower, etc.  It trickles down when a home is purchased.

Let’s take the contrarian view for a moment.  Maybe this is postive news.  We have an oversupply situation in this country regarding homes.  There were too many built.  There’s too much inventory.  That’s going to take some time to work off.  It doesn’t help the situation if for every empty home there is a new one being built down the street.  Less supply, more demand equals higher prices.  We’re working towards that and falling housing starts may not be that bad of a stat. 

Hence, a stock market today going back and forth with no real direction.

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