A sign of hope? Why housing hasn’t hit bottom

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If you, like I, were listening to the radio with one ear this morning, you might have heard a story that started off something like this: ‘A sign of hope today for the troubled housing market...’

Yes, there is a sign of hope. Housing starts were better than expected in April. There will be other signs of hope as the housing market begins to thaw out from near-freeze conditions. But no, these signs don’t mean the housing market is anywhere near reaching a bottom.

First the news, from Reuters via L.A. Times: ‘Construction starts on new U.S. homes rose by a surprisingly strong 8.2% in April and applications for new building permits turned up for the first time in five months, the Commerce Department said today in a report showing the hard-hit housing sector still had some spring vigor.’

Now, why that’s not very significant: ‘Single-family starts continue to show weakness and [are] coming off a 17-year low,’ said George Adell, a fixed-income strategist with Commerce Capital Markets in Jupiter, Fla. ‘We can’t say we’ve hit a bottom, but it’s better than what we’ve seen.’

There are roughly 2 million vacant homes for sale in the United States right now, prices of homes are falling, and credit is scarce for buyers with less than good credit. It is not a good time to be building houses. Sales of foreclosed houses now make up roughly a third of the housing market in California, and that percentage is likely to rise in the short term. Price declines in bubble markets (hint: we live in one) have been accelerating this spring, causing banks to re-calculate the damage to borrowers’ balance sheets. Bank of America said this week those balance sheets are looking even worse now, according to a wire story: ‘Bank of America Corp. warned Tuesday that its losses on home-equity loans would be worse than it predicted just three weeks ago, adding to evidence that more consumers are falling behind on debts.’ When the biggest consumer bank in America says things are worse now than they were three weeks ago, that is not a sign of a bottom.

But maybe I’m wrong. If you think so, go ahead and school me. E-mail story tips to peter.viles@latimes.com.
Photo Credit: Associated Press