September 22, 2004


Surprise! Housing Starts in August Rise (Mark Felsenthal, 9/21/04, Reuters)

U.S. housing starts unexpectedly rose 0.6 percent in August to their highest level in five months as low mortgage rates encouraged construction, but permits fell more than anticipated, a government report showed on Tuesday.

Housing starts climbed to a seasonally adjusted annual rate of 2.000 million units from an upwardly revised 1.988 million in July, the Commerce Department said. Analysts polled by Reuters had expected starts to ease to a 1.935 million pace.

"It suggests that the housing market is still quite healthy despite the increase in mortgage rates earlier this year," said Gary Thayer, chief economist at A.G. Edwards & Sons.

If you didn't know better you'd swear supply rises to meet demand.

Posted by Orrin Judd at September 22, 2004 11:00 AM

Econopundit had this:

Sorry Virginia. They're all we've got and we rely on them. But data just aren't perfect.

David Malpass is now pointing out an important apparent data inconsistency -- the Federal Reserve's flow of funds data are showing a significantly higher rate of household saving than the BEA's personal savings data. According to the flow of funds accounts, household saving was roughly 9% for the second quarter (as compared with just 0.6% recorded in July's personal savings data).

Periodic checking of the flow of funds accounts, while not for the faint of heart, is a vital activity for anyone who wants to be a credible economic commentator.

And he links to the Bear-Stearns paper.

Posted by: Sandy P at September 22, 2004 11:40 AM

Supply will rise to meet demand, when possible.

In the South and most of the West, housing permits are easy to obtain, and there's plenty of space to build 'em.

Not so in places where home prices are sky-high.
Where's the new supply of homes in Hawai'i, D.C., the NYC tri-state area, San Fran. (Silicon Valley), or Hanover, NH ?

Furthermore, much of real estate pricing really is location, location, location. People want to buy in certain areas, and often aren't very interested in nearby areas. Once the area of interest is completely developed, where can a new supply come from ?
What happens is that buyers bid up home prices in the areas most people want to live in, and ignore reasonably priced housing twenty minutes away.

Or, in the case of D.C., 90 minutes away.

Posted by: Michael Herdegen at September 23, 2004 3:05 AM

a new area of interest. No one wanted to live in Brooklyn or Staten Island twenty years ago.

Posted by: oj at September 23, 2004 7:23 AM

Well, that's the way that I think, but apparently most people don't think that way, or comparable homes twenty minutes apart wouldn't have a $ 400,000 price spread.

Homes aren't fungible.

Posted by: Michael Herdegen at September 23, 2004 8:10 AM


Yes, they are, we just have more money than we need to use wisely so we prefer convenience even at expense.

Posted by: oj at September 23, 2004 9:07 AM

As a matter of fact, supply is not being produced to meet demand.

There's a huge and growing demand for 4- or 5-room houses (2 or 3 bedrooms, kitchen, living room) of, say, 950 to 1,100 square feet on 6,000 square foot lots (the kind of house I grew up in).

Go down to your building permit office, Orrin, and report back to us how many such houses have been permitted this year.

I'll bet, not any. I'll further bet, not more than a few dozen in the past 20 years

This is only partly the fault of the market. The irritation factor in starting a house has been set so high that if you're going to build at all, you may as well build big.

Therefore, the average house size has doubled over 30 years. There was no market demand for that; the opposite, in fact.

If the only kinds of motor vehicles being made were
Jaguar V-12 convertibles, would you say the market is rising to meet demand?

Posted by: Harry Eagar at September 23, 2004 12:40 PM


Come visit and I'll show you a dozen of them for sale, cheap, within twenty minutes of here. They're dead farms. But no one wants to move that far away. The supply is greater than the demand.

Posted by: oj at September 23, 2004 1:25 PM

I said no one has built one in years, and that's true.

There's plenty of demand for houses like that elsewhere, and no supply.

I could sell 5,000 of them, for $200,000 each, tomorrow if I had them.

Posted by: Harry Eagar at September 23, 2004 3:54 PM

And I said supply rises to meet demand. There isn't sufficient demand for the supply to even be used up.

Posted by: oj at September 23, 2004 4:20 PM

There is here.

Posted by: Harry Eagar at September 23, 2004 8:34 PM

Which explains the record construction levels, as supply rises to meet demand.

Posted by: oj at September 23, 2004 10:31 PM

I can quote chapter and verse if you want -- it's my kuleana -- on what the demand is, but the bottom line is: huge demand here for small houses, zero supply

Building mansions for millionaires is not the same thing as meeting the demand for housing

Posted by: Harry Eagar at September 24, 2004 3:08 PM

There's a house building boom.

Posted by: oj at September 24, 2004 3:15 PM