Don't be overly impressed by the government's report today that housing starts in December rose 4.5%, while permits were up 5.5% for their first increase in 11 months. The report is good news for housing, but not quite as good as it appears at first glance.


Action Economics tore apart the numbers in detail and wasn't overly impressed. Some key points:

--Housing starts were seasonally weak earlier in the year, so they had some catching up to do.
--The weather was warm and dry on the coasts, which encouraged builders to start construction on some housing ahead of schedule. So there was probably some borrowing from future months.
--The number of permits has been lower than the number of starts for three of the past four months, including December. Since permits have to come before starts, that discrepancy is a negative indicator for the level of construction starts in coming months.

Action Economics' bottom line:

"Though most real estate indicators show stability since the June-August downsizing, the production sequence of starts, construction, and completions should continue to show downward ripple-through effects until mid-2007, as the sector digests the inventory overhang."
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