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Building Permits, Housing Starts Down, But It Ain’t That Simple

Yep, just as the ‘experts’ figured, the end of the homebuyer tax credit was the beginning of the next real estate implosion, right? Building permits fell from 610K in April to 547K in May. Housing starts fell from 659K to 593K. Woe to all investors and real estate owners.

Before anyone starts banging the death drum, there’s more to the story you need to know…. the rest of the story the media never explains adequately.

Yes, starts and permits dropped between April and May. Their plunges were 10.3% and 10.0%, respectively.

That’s it? Yep, that’s it. While a 10% decline of anything isn’t chump change, it’s hardly a disaster of the proportions the pundits were preaching. That’s not even the important part of the “rest of the story” though.

What the nay-sayers failed to mention is that in every year since 1970 - with the exception of 1981 - starts and permits have peaked in April, May, or June. That’s right - forty years of the same action we just saw on the starts/permits front (with only one exception)  occurred last month.

It’s a point well worth making (and understanding), as far too many perma-bears have already stood up on their soapbox and told us the end is nigh. The end of modern civilization may well be around the corner, but the April-May dip in building permits and housing starts does NOT serve as evidence of such. It’s actually a quite typical dip.

To be fair, starts and permits are still at multi-decade lows. They are trending higher now though, with 2010’s peaks coming in better than 2009’s, and 2009’s lows coming in better than 2008’s. It’s still ugly to be sure, but as it stands now, the trend shows improvement…  whether you want to believe it or not.

Here’s a full-screen (and longer-term) chart of the permits and starts.

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James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.