Nick Timiraos and Robbie Whelan tag teamed on an article in the Wall Street Journal yesterday with the big, bold title "Housing Market Stumbles". The article opens with this timely nugget: "The housing market, whose collapse pulled the economy into recession in late 2007, is stalling again." Really Nick? Seriously Robbie? The accompanying graph shows the dismal housing starts that are currently at a seasonally adjusted rate of 454,000. That's down from nearly 1.5MM at the peak of the market in 2006. The article blabs about how horrible these housing starts numbers are and what they mean for the broader real estate market. Here's what I think about this- I'm glad housing starts are down.

Before builders everywhere start pounding out 262-245-9000 and commence screaming at me, consider this. What is good for the housing market isn't necessarily good for the construction industry. I realize that construction industry jobs are important, and that those jobs ultimately lead to more wages which in turn leads to more home sales, but if we're just looking simply at the nuts and bolts of the housing market, lower inventory is key. If new home starts are down, that's a good thing as it relates solely to the health of the national market.

Don't believe me? Ask Geneva National how good housing starts were for the market there. Perhaps if, during 2005 and 2006 while the market was slowing, builders scaled back new construction and instead allowed existing inventory to be more easily absorbed we wouldn't have the current stressed out market that we currently have in Geneva National. While the housing starts in GN from 2005 through 2009 were good for tradesman and wage earners, they damaged the broader market by increasing inventory and they ultimately drove prices down when builders were forced to slash prices in a vain attempt at attracting buyers. If housing starts had slowed sooner in GN, perhaps the market would be much healthier as a result today.

The same is true on a national level. While housing starts did dip abruptly, there were still far too many homes being built even after the market started to contract in 2007. Housing starts bottomed during the third and fourth quarters of 2008, and have actually increased month over month until this most recent stumble in June. For the life of me, I cannot understand why they housing starts would be as high as they were in June. Again, with apologies to my builder friends, there aren't too many reasons to build new these days. Custom, owner occupied homes are an exception, and the custom lakefront construction boom occurring on Geneva right now would be an extreme exception to the rule. If you're going to build custom homes that's one thing, but these housing start numbers weren't pushed to 1.47MM by custom homes, the number only grew that large due to the spec home craze of the early and mid 2000's. A spec home craze that is thankfully, and mercifully, over.

As a guy that has built and remodeled more than my fair share of homes, it appears to me that construction prices haven't dropped much. Perhaps they have, but any fluctuation in wages for tradesman and cost for raw material is imperceptible to me. Housing stock meanwhile has dropped significantly. So much so that in developments across the country there are more than likely hundreds of thousands- if not millions- of homes that are listed for sale at prices far less than anyone could ever rebuild them for. It is in this fact that it makes little sense to build new, and when you combine the low prices of existing inventory with the lack of spec home construction, there's little reason to wonder why the housing starts number was so abysmal for June. To take it one step further, it makes even less sense to expect the housing starts number to increase any time soon, and by any time soon I mean literally two or three years.

With a glut of inventory on the national market, new construction seems a bit superfluous right now. For those desiring custom homes, by all means, build away. I'm personally contemplating new construction at the moment, but only because I have percolating in my cavernous mind a design for a home that isn't something I can find on the existing market in my price range. That's right, I'm going to build a sphere house out of concrete like at Xanadu. I'm not, but if you were craving a round concrete house, by all means, build away. For the rest of the country, chances are there's something available on the open market that is perfect for you, at a price that is less than the original (if recent) construction cost. Common sense is dictating that these housing starts numbers decrease, so let's not get all in a huff about what they mean for the housing market. Aside from the impact of the construction jobs that are being lost or marginalized, fewer starts means lower inventory which in turn ultimately creates a healthier housing market.