Opinion

New-home statistics may be generating a false signal

What if low interest rates, not healthy economy, are driving new construction?

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Yesterday we learned from the U.S. Commerce Department that the pace of construction of single-family homes increased in August and building permits for new homes hit a five-year high. This data was trumpeted as evidence of “continued resilience in the housing market recovery.” I am not convinced. New-home starts are still far below their historic norms because the total demand for homes is not robust, as wage and job growth are nonexistent, and in the words and recent actions of Federal Reserve Chairman Ben Bernanke, the economy is weak and would tank if interest rates were higher. I wrote back in June that the supply-demand inventory shortage would reverse in part because homebuilders would increase output to meet the artificially stimulated demand. Yesterday’s housing starts report shows that prediction to be correct. Homebuilders are falling for the trap. Low interest rates, rising prices boosting home construction Homebuilders are taking their cues not from ...