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Contradictory Housing Figures May Offer a Glimmer of Hope

A lot of conflicting housing numbers were issued this week, including a major negative. But here's why, on balance, they may contain a glimmer of hope.

The week began with home builder sentiment rising. The index of the National Association of Home Builders rose from 12 in April to 14 in May. But it's also true that any reading under 50 indicates the majority of builders view conditions as poor. Here's how NAHB chief economist David Crowe views the stats:

This continued increase indicates that home builders feel we're at or near the bottom of the market and that positive signs lie ahead for builders and potential home buyers, provided that builder access to production credit significantly improves.
In other words, things are looking up if home builders can get loans.

At the same time, home improvement retailer Lowe's indicated business was looking up despite a decline in first quarter profits. "There have been some encouraging signs in recent weeks to suggest that perhaps the worst is behind us," said Rober Niblock, Lowe's chief executive. But he also warned that there were also potential headwinds that could hurt the business throughout the remainder of the year.

The day after Lowe's results were announced, rival Home Depot reported higher than expected profits, but it sounded a much more cautious note on the economy. Chief executive Frank Blake said foreclosures were still increasing in parts of the country, particularly the west. "Before we see real improvement, we believe we need to see sustainable deceleration in foreclosures," Blake said. "Getting to less bad is not the same as getting to recovery."
The big negative this week was a report by the Commerce Department that April housing starts declined by an unexpected 12.8 percent to 458,000. That was a major, unexpected fall. But if you look closely at the numbers, an interesting fact emerges. Construction of single family homes actually rose 2.8 percent in April, registering a second monthly gain. It was multifamily homes such as apartment buildings that fell dramatically, down 42.2 percent for the month to an annual rate of 90,000 buildings. So it's commercial real estate, which builds things like apartment blocks and shopping malls, that is still feeling the full brunt of the downturn, while single family home construction has turned anemically upward.

While the housing starts number was truly awful, some economists said they saw a positive sign in the numbers. Tony Crescenzi, an analyst at Miller Tabak, said in a note to investors (unfortunately not online) that a recent decline in housing completions may mean less inventory available in a crowded market. "Now that fewer homes are hitting the market for sale, the growing U.S. population will have fewer homes to choose from," Crescenzi said. "This will accelerate the recent decline in home inventories. This will undoubtedly be a game changer for inventories and prices."

Surveying the recent slew of contradictory statistics, real estate mogul Sam Zell said he believed that the housing market would turn around this summer and that the U.S. would be the first to rebound from the recession. "Housing market stability will appear sometime this summer," Zell told a convention of shopping mall owners. "I can't tell you if it's June 29 or August 1." Zell is a pretty wily investor -- he sold his real estate empire at the top of the market in 2007 and made a $2 billion profit. So let's hope that Zell is right and the recent confusion over housing statistics points to a bottom in the market.

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