Today’s Housing Numbers Only Tell Part of the Story
Housing remains in focus today, with starts rebounding to 9.3% and permits up 6%. Both of those numbers are much better than expected, and the market seems to like them early in today’s session. But they’re also not telling us the whole story.
As nice as those numbers may sound, the fact is that a lot of those starts and permits are for multi-family units. Since so many people can no longer afford to buy their own homes, there’s an increased demand for rental units. I’d much rather see a flurry like this in single-family units—that would give me a more optimistic view on both housing and the overall economy.
Five or 6 years ago, before the bubble burst, housing made up about 6% of GDP. Today, it’s closer to 2%. That means that housing has less of an overall impact on the overall economy than it once did. Is 2% of GDP rock bottom? Only time will tell, but maybe, just maybe, if we continue to see numbers like today, we can get to a point where banks could loosen. But that’s a big jump from where we are now.
When I talk to bankers, I hear the same thing time and time again. They’re all afraid to do anything because of new regulations coming down the pipeline care of Dodd-Frank. These new regulations could change capital requirements for regional banks, which is creating a major obstacle to lending. If you’ve got $100 to lend today, but next year the government may force you to have a significant yet undisclosed percentage of that $100—could be 5%, could be 50%—on hand at all times, are you going to make any loans? The fact is that without some kind of regulatory reform or holiday, we’re going to remain in this stagnant situation.
But like today’s housing numbers, regulations are only part of the story. Back in the old days when I was on the board at the CME, Leo Melamed used to say, “Jack, don’t come to the table with a problem unless you have a solution.” So I’ll follow the great chairman emeritus’ sage advice and present a very simple solution here: We need an environment where jobs are being created and where businesses want to create jobs. Until we get there, the American Dream of a place on a cul de sac with a white picket fence will remain under attack, and a true recovery in housing will remain elusive.