Lousy Housing Data Casts a Pall Over Recovery
This post by Jill Schlesinger originally appeared on CBS' MoneyWatch.com.
There's more worrisome data about the housing market this morning: housing starts plummeted 10% to a 593,000 annual rate in May, the lowest level this year. Also of concern: building permits, a sign of future construction, unexpectedly declined to a one-year low. We shouldn't have been surprised after yesterday's downbeat NAHB Homebuilder index, still the numbers are sobering.
Data like this certainly give credence to the idea that we could be in the midst of a "homeless recovery", where housing, which normally would boost growth during a recovery, simply isn't meaningful enough to add to GDP. Without GDP growth, we're unlikely to put a significant dent in unemployment. How's that for a vicious cycle?
With worries mounting that the housing market could see a rough second half of the year, there have been suggestions that Congress to enact yet another tax credit. While in the short-run, a tax credit may smooth frayed nerves, there's only one way to dig out of this housing mess: let the old fashioned law of supply and demand take over.
Oh sure, in the heat of the downturn, I understand providing incentives to lure buyers back in, but now the reality is clear: the housing market must slog through this mess by burning off existing inventories, which would ultimately lead to a more normal sector that moves according to market forces. Though painful, the process will ultimately lead to a healthier market in the future.
Image by Flickr User San Jose Library, CC 2.0
Jill Schlesinger is the Editor-at-Large for CBS MoneyWatch.com. Prior to the launch of MoneyWatch, she was the Chief Investment Officer for an independent investment advisory firm. In her infancy, she was an options trader on the Commodities Exchange of New York.
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