The hot economic news last week was U.S. housing starts as the Commerce Department reported home starts in January rose to their highest level since 1973. Construction began on 2.276 million homes in the U.S. in January, up 15% from December of 2005.
Dear reader, please don’t let these robust numbers fool you. It’s not the housing starts that are important; it’s the sales of new homes that are important. We experienced an uncharacteristically mild January, so builders broke more ground than they normally would. Temperatures in January averaged 40 degrees Fahrenheit in the U.S., the highest in over a century.
The homes being built now are simply fulfilling the sales of 2005. We don’t care what happened in the past, we care about what’s happening now! Please consider the following:
— Housing affordability fell to the lowest level in more than 14 years in the fourth quarter of 2005.
— The Mortgage Bankers Association’s weekly index of mortgage applications to purchase or refinance homed dropped 7.3 percent last week alone.
— The National Association of Realtors expects the 30-year mortgage rate to rise to a whopping 6.9 percent by year-end. (After hearing the new Fed boss speak last week, I think 6.9 percent is on the conservative side.)
— All the major U.S. new-home builders are complaining about demand for their products declining.
The bottom line: The housing market is much softer than most analysts and consumers comprehend at this time. My contacts in the industry are telling me demand is getting soft, prices have stopped rising. Damage to the economy this year from the softening housing market will be substantial.
NEWSFLASH-BMO Nesbitt Burns, a traditionally conservative bank owned brokerage house, has just raised it forecast for gold bullion prices to $610 U.S. an ounce this year and $660 U.S. per ounce next year.