The Misleading Nature Of June’s Housing Starts Data : Why It Wasn’t As Bad As You’re Reading

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Single-family Housing Starts eased lower in June, falling by 0.7 percent from May. This represents a grand total of 3,000 units nationwide.

You may have heard the Housing Starts story differently, though. It depends where you get your news.  The majority of headlines call June's data a disaster. I respectfully disagree.

For home buyers of new homes, and home sellers of existing homes, the data may be quite favorable.

Housing Starts Is A Composite

A “housing start” is a home on which construction has started; technically, a ground-breaking. It applies to homes of all types -- single family, multi-units, and buildings like condos and/or apartments.

Unfortunately, though, when the press reports on Housing Starts, it rarely singles out single-family homes. Instead, it lumps every type of home into a single, giant reading.

As a result, news outlets are reporting June's Housing Starts down 5 percent — a somewhat misleading figure.

The market for single-family homes is where the large majority of Americans buy and sell. Very few people buy and/or build brand-new multi-unit homes, or giant apartment complexes, by comparison.

Single-family housing starts did what everyone expected it to do once the home buyer tax credit expired.  It dropped.

But only by a tad.

June's Housing Starts Data Is Statistically Suspect, Too

However, although the government reports June's Single-Family Housing Starts down slightly from May, because of something called margin of error, we can't put faith in the findings. June's margin of error was 10.7 percent.

As the Department of Commerce noted itself, there is no actual statistical evidence to prove the change in starts from May was different from zero.  The "true" change could be anywhere from -11.4 percent to + 10.0 percent.

That's a wide range.

Ignoring Margin Of Error, Home Buyers And Sellers Smile

If Housing Starts did, in fact, drop in June, it means that housing inventory should fall in Cincinnati, a move that supports local home values. To home sellers, this is good news because it shifts negotiation leverage away from buyers. Fewer homes for sale means less competition for foot traffic.

For home buyers buying new homes, the news is favorable, too.

June’s Housing Starts data helps explain why home builder confidence dropped to its lowest level since April 2009 which, in turn, should create an excellent opportunity to "buy new" on the cheap. Home builders don't like being saddled with inventory and will often offer free upgrades and other incentives to move product.

Additionally, mortgage rates are better since the Housing Starts data release.

Get A Pre-Approval For Your Home Purchase

Home buyers need pre-approvals to show that they're serious about buying, and that a mortgage lender can qualify them for the home in question. Start your pre-approvaland we'll handle the rest from there.

Pre-approvals take 4 minutes by phone and are usually completed within an hour.

(Blog post licensed and adapted from Bring the Blog)