Housing again

New home starts surged last month, with many citing a shrinking supply of distressed and foreclosed inventory but I’m not sure this picture is complete The chart above shows two series: first, housing starts (HOUSTNSA, black, thousands of units measured monthly) and the delinquency rate on single family homes (DRSFRMACBS, blue line, measured in percent and sampled quarterly). A few observations: first, it is undeniable that housing starts are increasing but I’d suggest that claim starts are surging should be viewed in context. Overall, we are still very, very low compared to the May 2005 highs. Second, and this should really give the markets pause: delinquencies are still at record highs and, in fact, trending up.

Recall that banks choose when to foreclose. As mortgage enter delinquency there are no standardised rules regarding when these properties will be foreclosed on. Delinquencies, therefore, represent future possible foreclosures and thus must be treated as possible supply that could enter the market at any time. Although I do like some of the recent good news on home builders and many of the stocks look like good buys, I think some of the good news about house prices overall might be getting a little ahead of itself.

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