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Commentary: Walking the Walk

The nation's home builders celebrated Tuesday with the release of ""July's Housing Market Index"":http://dsnews.comarticles/builder-confidence-surges-again-in-july-2013-07-16, which showed a six-point jump in the measure of builder confidence on the heels of a seven-point jump one month earlier.


The combined 13-point increase meant the index was up 29.5 percent in two months, vaulting from a humdrum 44 to a ""positive"" 57 (any index value above 50 is considered positive). In the last three months, confidence--as measured by the index--is up 16 points, or almost 40 percent.

While the index is made up of three components--an assessment of current new home sales, new home purchases six months out, and buyer traffic--it was the buyer traffic measure that pulled the overall index up, jumping 15 points (or 50 percent) in the last three months. The ""future"" measure also increased 15 points in the last three months, a 29 percent bump to 67, while current conditions are up 16 points (or 25 percent) in the last three months.

With giddy numbers like these, one would think builders would rush to break ground--or at least file the paperwork to do so, but they're not.

As confidence was improving, new residential construction--housing starts--was falling, sliding from a seasonally adjusted rate of 1,005,000 three months ago to 836,000 last month, a 17 percent drop. The pace of single-family starts was off 5.1 percent in the same period, while the rate of multifamily starts dropped almost 36 percent.

Permits didn't quite follow the same path: The rate of total permits is up a little of 2 percent over the last three months--despite falling 9 percent in the last two months. The pace of multifamily permits is down, albeit just a little over 1 percent over the three months--but off almost 27 percent in the last two months. Single-family permits have, however, risen about 4 percent in the last three months--but just 1 percent in the last two.

So what's going on here? Are builders confident, or aren't they? And if they're not, what would turn them into true believers answering surveys with a bit more than hope?


The answer might be found in a different report issued just a day after the report on permits and starts--a report by the Bureau of Labor Statistics (BLS) on ""usual weekly earnings of wage and salary workers"" for the second quarter of this year.

The earnings report (flowing from the Current Population Survey, which yields the closely-watched unemployment rate) is one of those mind-numbing data sets often overlooked in the mainstream media, but critical for businesses--especially home builders.

According to the report, average weekly earnings in the second quarter were $776, up just 0.6 percent from a year earlier (while prices, measured by the BLS' consumer price index, rose 1.4 percent in the same period).

The BLS report offers some fascinating insights. For example, women earned 82.2 percent of what men earned. White women earned 81 percent of what white men earned, but the ratio was brought _up_ by black women, who earned 91 percent of what black men earned, and by Hispanic women, who earned 94 percent as much as their male counterparts.

It's housing, though, that bears the brunt of $776 of average weekly earnings--$3,363 a month or $40,350 a year. The BLS report tracks earnings (pre-tax), the base used for determining housing affordability.

According to the most recent government data on home prices, the average price of a new home in May (June figures will be reported July 24) was $307,000. The median price was $264,000. The average and median prices are up about 10 percent in the last year, more than 10 times the increase in earnings.

We've seen this movie before: Just ahead of the housing crash, home prices rose faster than incomes. We remember how that movie ended, so no spoiler alert here.

Home prices are rising much for the same reason drivers speed up as they spot a countdown clock winding down at an intersection, rushing to get past the corner before the stop light goes on. In this case, the stop lights are interest rates, with prospective buyers trying to get in under the wire before rates go up and perhaps make those homes unaffordable. Sellers have an incentive, too, as rising rates could push prices down.

The rush of traffic flows directly from the fear rates will rise, but savvy builders know it won't last.

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_Hear Mark Lieberman on P.O.T.U.S (Sirius-XM 124) on Friday at 6:20 a.m. Eastern._

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.

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