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Housing starts are up 46% from their low

It would be hard to argue that residential construction, measured by housing starts, is not in full recovery mode. January starts were much higher than expected (699K vs. 675K), and December starts were revised up almost 5%. From the low in April '09, starts are now up by 46%. This is a recovery, and it started almost a year ago, though it has somehow managed to fly under the radar of the consensus view that the economy is very weak. The level of starts is still miserably low, of course, but we are seeing very impressive changes on the margin in this indicator. This is very good news, because it shows that builders are more confident in the future because they see a looming shortage of housing after years of extremely deep construction cutbacks. This further suggests that the underlying fundamentals of the housing market are much sounder than most believe have been led to believe. On the margin, the problem is no longer a glut of homes for sale, but a shortage of homes relative to the number of households in a position to buy them. This is very good news.

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