Friday, September 28, 2012

The New Normal in Housing

This was a somewhat confusing week, if you're interested in whether the housing market is recovering, or not. On Tuesday, we heard that "we're at the start of a real housing recovery". On Wednesday, the AP reported that "New U.S. home sales edged down 0.3% in August". And yesterday we read "Pending sales of existing homes falls below mark considered healthy." On the same day, blogger David Dayen ran an informative piece on the housing statistics, although under the rather misleading headline "New Home Sales, Home Price Statistics Continue to Fuel Optimism on Housing." Misleading, because the gist of his article was that the optimism is based on results buoyed by three factors that are sending "false signals" with respect to true demand: a slight increase in the number of people employed since last year, the artificial suppression of supply of due to people not putting their homes on the market, and a speculative bubble in key markets by institutional investors that are taking advantage of low market prices and stockpiles of cash.

One of the best ways to cut through this fog is to catch the comments of respected expert housing analyst Dr. Robert Shiller of Yale University, who is the other half of the Case-Shiller Indices used to monitor housing industry health. Dr. Shiller is usually quite measured in his responses to the frequent questions on housing directed his way, because his experience in analyzing housing data gives him the wisdom of a much longer perspective on the data than most analysts who look at housing numbers. In the interesting interview below from last week, Dr. Shiller explains that it's too early to predict that we've reached the bottom in housing markets, and why he would wait until we see "at least a solid year of price increases" before the recovery will be real.



I also find CNBC market commentator Rick Santelli very helpful in helping us "regular folks" better understand what the heck all this economic turmoil means. In this white-board tutorial from yesterday, he hits the four main global economic drivers - stimulus, Europe, China, and housing - and their significance to any potential recovery. And he ends his discussion with the conclusion that we are now at the level of housing activity that represents a "new normal" in housing, and that any hope for a magic-bullet quick return to the days of 1.5 million housing starts is seriously misplaced.



This morning, there was a real plain-spoken, humorous confrontation between Santelli, and his CNBC counterpart Steve Liesman, who works real hard to find positive spin on almost all economic data. They reached an agreement that there may be a good market for futons in the coming years, which is good news for you light furniture manufacturers out there. The spirited exchange begins at the 5:00 minute mark, if you want to click forward in the video below.



But seriously, I want to re-emphasize that we in the wood industries need to focus on those things that will sustain our business model at current sales levels: gains in efficiency, productivity, and creativity in product development and service. The old days of two-month long order files are history, but profitability need not necessarily be.

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