Homebuilding: Take the Long View When It Comes to the Economy


Housing has been strong, especially in the mountains of North Carolina, but then one month you hear of a nationwide “decline” or “slowing.” Reporters are spinning it so that one month tells a story. In truth, it’s a longer view. Here’s a great article by Forbes titled, “How Reporters Mistakenly View Homebuilding as Weak.”

It’s an interesting read, but also a good reminder to take every article with a grain of salt. Perspective is a wonderful thing. If you were in the housing market during the Great Recession, you have that perspective.

How Reporters Mistakenly View Homebuilding as Weak

The misinterpretation described before continues. Previously, it was misconstrued new home sales data that turned positive into negative. This time, it is erroneous new housing starts analysis that does the same.

Disclosure: Author holds homebuilder PulteGroup

Here is a typical conclusion (The Wall Street Journal):

U.S. Housing Starts Declined in May

May’s 0.9% drop is new sign of weakness in the housing market

In addition to this view, many reports have analysts missing the mark by having forecasted a rise. These reports are wrong – growth was positive, and analysts actually underestimated the growth.

How so? By moving the goal post for one measure, but not for the other. Here are the relevant measures:

  • April report (released May 16): 1,235K housing unit starts

  • Consensus May forecast (prior to May report): 1,239K (range: 1,205K to 1,250K) = 0.3% growth

  • May report: 1,269K (exceeded consensus by 2.4%; growth from April = 2.8%)

The goal post shift? The May report also included the first revision for April, up 3.7% to 1,281K. That revised level was what created the 0.9% decline for May. However, the analyst growth was left anchored to the initial report of 1,235K starts. Ergo, the popular media conclusion: Homebuilding looks weak, and analysts’ growth expectations were unfulfilled. The unexpected and desirable 3.7% April growth revision? Ignored.