Meaningless Statistic

Forget housing starts.  Unless you’re a homebuilder or lumber supplier, they can’t mean much about the economy these days.

I suppose there is some small fraction of people who will pay twice as much to get that new house smell, though I think it’s probably VOC’s gassing out and not very healthy.  Or is it having just the right faucets in the master bath?  Really?

With the decline in house prices nationwide, today a buyer can get an equivalent home for anywhere from 20% to 70% less than replacement value.  I suppose there are those who will buy a new Hyundai even if an unsold Mercedes a block away is selling for less.  By the way, those lots full of attractively priced Mercedes amount to a couple of years’ supply, so it’s not so hard to find what you want.

Maybe it has something to do with maintenance cost.  But they why not buy a smaller, easier to maintain abode for less money and hold onto the rest?

I think most people in the market for a house or condo can figure this out.  They can get the equivalent of one to two years’ take-home pay off the price by going through the hassle of buying a foreclosure or distressed sale by an owner who has to go.

An unlike cars, “used” houses are a far larger market than new, even in the best of times.  During the peak of the craziness there were still more than three times as many existing homes sold as new construction.

The other argument is that homebuilders have figured out how to build cheaper to meet the market.  To that I say “Sure, if you want all the glued ‘wood product’ (not wood) seams to come apart in seven years, or if you like the permanence of all-plastic plumbing.”

So why do all the financials, the amREITs and even the S&P jump up or jump down every time the new home sales figure comes out?

I guess the people that like to push the prices around and trap the unwary investors simply need an excuse.  If it weren’t that statistic, it would be something else.  The nice thing about setting up trading traps to trigger when a number comes out is that you know when it will be released and it gives you cover if you’re going to manipulate the price of a stock or a specialty index.  That wouldn’t be Kosher, and we know the big boys never would do that.


3 Responses to Meaningless Statistic

  1. Bruce B says:

    A buddy of mine was going to build. He quickly figured he could buy a nicer house than he was going to build for much less money. He and his wife didn’t care much about the faucets in the master bath.

  2. Gary Anderson says:

    Howard, I think a lot of individuals either lack the energy or, perhaps, lack the imagination to see what they might do with a well priced used house to “fix it up” and make it reflect their personality. The problem today is that apparent bargains may, in another year, look like they were expensive.

    Until we get employment and wages for the masses going in the right direction, it will be unlikely to see a real recovery in housing. The new home starts and new home sales numbers are simply noise overlaying a base performance signal indicating a housing market that is unhealthy.

    I am not optimistic that we are going to see employment or housing recover on the short term.

    Thanks for your thoughts.


  3. Conscience of a Conservative says:

    There’s absolutely no reason to buy a new house today or build one. But I believe rising raw materials will only increase the future replacement cost of housing which can only help support housing prices down the road.

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