HOUSING HOCUS POCUS

From the Wall Street Journal:

"New-home sales soared in June from the previous month, the third increase in a row and supplying fresh evidence the housing market is beginning to recover from its long crisis.

Sales of single-family homes increased by 11.0% to a seasonally adjusted annual rate of 384,000 compared to the prior month, the Commerce Department said Monday. Though, year-over-year, new-home sales were 21.3% lower than the level in June 2008."

I'm wondering about this. When the media reports this surge in sales are they talking about sales contracts or permit applications. Those are two very different things. And how many of these homes are inventory homes, built on speculation and not sold. Builders are giving away the store to get rid of these. While they may be sales, they certainly aren't doing much for the economy.

"Home construction unexpectedly rose in June, the government said July 17. Housing starts increased 3.6% to a seasonally adjusted 582,000 annual rate compared to the prior month. The starts data also showed building permits surged, and single-family starts made their biggest climb in four years."

The rate of unemployment nationally is between 16%-21% depending on which figures you look at and who you want to believe. Banks are not lending. I was told by a developer from Chicago that he cannot get any financing through his bank. He was told by a bank examiner that the banks will not lend money to developers regardless of the governments insistence that they do so. They learned their lesson from the last time. Building permits surged. Whatever. Going from 0 to 1 could be called a surge but I wouldn't get too excited about it.

"Prices are down because of too much supply. The ratio of houses for sale to houses sold in June was 8.8. But inventories are shrinking. The ratio was 10.2 in May. At the end of June, there were an estimated 281,000 homes for sale. That's below 293,000 for sale at the end of May.

Cheaper prices and historically low mortgage rates are offsetting tight credit and a high unemployment rate. Another lure, for first-time buyers, is a government tax credit."

If the banks won't lend then the only place the money to buy houses can come from is the taxpayer. Somehow, someway the government is juicing the market. There is no other way to explain any growth in new home sales.

“Foreclosure activity continued its upward trajectory nationwide and in the majority of metro areas in the first half of the year, but there are some significant differences beginning to show up in the data,” said James J. Saccacio, chief executive officer of RealtyTrac, in a release from the company.

Saccacio went onto say that cities such as Provo, Utah, and Boise, Idaho, which have maintained lower foreclosure rates up to now, saw foreclosure rates jump in the past six months, an indication that increasing unemployment rates are beginning to impact foreclosures."
Fox News

Foreclosures are still going through the roof in the residential market with the commercial real estate market poised to follow suit. Why should I believe the banks are lending money to support the so called surge in new home construction?

"From Marketwatch:

Resales have gained for four consecutive straight months, the longest streak of increases since 2004. "Momentum is building," said Lawrence Yun, NAR's chief economist.

In other news July remains the last full month before school starts and spring and summer are always the strongest months for home sales."
MarketTicker

Momentum is building in resales and new home sales. I guess you could say momentum is building in new car sales, too. What happens when the taxpayer monies are cut off in the cash for clunkers scam on Monday? The same thing that is going to happen in the home building business when whatever games the government is playing stop there, too.

I posted an article the other day about sales at Caterpillar. If construction was turning around, and the builders thought that the turn around was real and sustainable, Caterpillar would be accepting some new orders. This isn't the case. I know the construction business. These guys won't spend a dime unless they think they are going to get a decent return. I don't see anybody being rehired around here. The halls are filled with guys looking for work. Most of the contractors that I have dealt with for years are thinking about closing down. Major builders, such as Mayer Homes, have gone out of business. Subdivisions don't have any equipment sitting in them or holes being dug. They're mostly cleaned up and quiet. In the middle of summer, when everybody should be working. Don't tell me the housing market is surging. Somebody is feeding the public a line of crap.