Housing: Nothing Good to Report

The slump in the American real estate industry continues unabated. There is no news in that I suppose, and I fully expect the slump to last quite a bit longer. The bubble was that bad. Today’s report on house construction merely highlights the extent of the damage: construction of new homes fell 4.3% in December to an annualized rate of 529,000, making 2010 the second worst year on record behind the awful record of 2009.

While the decline in December may owe some of its descent to the bad weather across much of the Northeast and Midwest, no amount of excuse making can cover up the bare fact that real estate is a marginal activity for now. We have far too many issues to deal with before any sort of vibrancy can return. Credit has to flow again from our banks; unemployment has to fall towards a less nerve wracking level; the backlog of foreclosures and shadow inventory has to be worked off; and prices have to return to more earth bound levels from the bubble induced fantasy they occupied for so long. Above all: consumers need to re-evaluate the role of housing. It is not an investment. It is a long term consumable item. Surely if there is one old adage we need to toss overboard in our new era of realism it is that something can be “as safe as houses”. Millions of Americans have learned the hard way that real estate can be a dangerous place to stash your wealth.

True, the issuance of permits to construct homes, a leading indicator of future construction, shot up 16.7% in December. But much of that surprising increase is due to the rush in California, Pennsylvania, and New York to beat new permit regulations. Let’s see what the next couple of months bring before we talk of strong recovery.

Housing looks weak. Is weak. And will stay that way this year.