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Housing starts vs permits







Recovery skeptics are making a big deal of the fact that housing starts fell 4% in December (seasonally adjusted). Recovery fans are excited about the 10.9% rise in building permits, which would point to higher starts next month. I look at both these series and see signs that activity has probably stabilized and may be rising. If things have only stabilized, this would be a very good sign for the residential construction sector, because it would signal that the supply of and demand for housing was coming into balance. That's an important ingredient in the stabilization of prices. And stable home prices (and they may actually be rising on average) would do wonders for the value of many hundreds of billions of subprime mortgage-backed securities that are priced, I'm told, to the assumption that nationwide housing prices are going to fall another 15%. If home prices don't fall 15%, then the prices of those securities must perforce rise significantly; that in turn would generate huge gains for the portfolios of institutional investors and financial institutions that are holding them.

We don't really need to see housing turn up to be optimistic about the future; we only need to see signs that housing has finally stabilized.

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