4/17/2007 – Housing is NOT bottoming

The stock market rallied today with many pundits on CNBC pointing to better than expected housing starts. I doubt that any of these pundits actually looked beyond the headline number. We did and this is what the Commerce Department report said: “Regionally, housing starts fell 6.1% in the Northeast, 2.7% in the South, and 7.7% in the West. Construction surged 44.5% in the Midwest.” 

It appears that something quirky occurred in the Midwest to spike the data. We live in the Midwest and the housing market isn’t on fire as this single data point suggests. In fact, it stinks. Moreover, the giddy analysts failed to mention that housing starts were 23% lower than the level in March 2006. We repeat: Housing is not bottoming and we expect housing to be sluggish for years not quarters. 

The real information in this episode is what it reflects about investors: complacency is an issue in the market because any news is interpreted as good news.