A Brief Lesson in Economics

Bloomberg Reports that Housing Is Rocketing Skyward!!!

Hey, hey, housing starts are up!  That means housing has turned the corner, right?  Not so fast, Panama Red.

I have no problem with reporting the data, but I do have a problem with the way it's reported.  Every time I see these headlines, the heady writing always includes something like "this shows that demand for homes is picking up."  In fact, that is a blatant lie, or a misunderstanding of the simplest concept of Econ 101.





As Norv Turner said to the Chargers at halftime of Monday night's game, "Let me break this down for you."  (I'm fairly confident Norv Turner said no such thing, but I'm trying to kill two birds with one stone here):

• Housing permits, starts, authorizations, etc., are supply, not demand.  Furthermore, they represent the opinion on future demand made by the same idiots who didn't see the housing turn coming, and who continue to predict the turnaround inaccurately for the ~sixth year running.
• Housing supply and housing demand, though up in some months by double-digit percentages, are still down by more than 50% from their highs, and because a high percentage of sales are to investors rather than actual homeowners, sales rates are overstated compared to historical averages.  You will rarely see this in stories, because they tend to use a 1-year chart and don't start graphs with a zero y-axis, so all you see is an upward sloping line, rather than the carnage of few years ago to give you some historical perspective.  
• Due to seasonal fluctuations, the correct comparison is year-over-year, not month-to-month.
• Housing completions run at about 50% of permit activity.  In other words, about half of the permit activity is simply fantasy.  
• Most reported start/permit activity includes multifamily units (apartments and condos).  Accurate comparisons strip this out of the totals, something most journalists fail to do. 

So why do they do this?  I have my theories, pick one (or two or three), or add your own:

• Journalists are inherently lazy, don't give a shit, and take the easy way out by reporting the same swill month after month.  I really don't believe this is true for most journalists.
• People prefer fairy dust to reality.  Probably true.  
• Many financial/business journalists have little training in business, finance or economics, so they are at a disadvantage when it comes to these concepts.  This is probably true, given what I've seen on CNBC.  Then again, I consider the reporting on CNBC to be for sale to the highest bidder, and it should have a "PAID ADVERTISEMENT" warning displayed at all times, so that's probably a poor baseline to use. Then again, this is my fucking blog, so I can choose the baseline for incompetent journalism as I see fit.  So let me reiterate - CNBC has the worst business news reporting I have ever seen, its "journalists" are liars, whores and morons, and it makes me nauseous to watch it.  There are a few exceptions, very few...most have moved to other places.  
• Journalists are paid shills who will write whatever their advertisers want, or more to the point, won't write anything that pisses off their advertisers (see immediately preceding post).  I think more accurately, journalists are told what to write by their bosses, who are the actual dogs-on-a-leash to the advertisers, and write what they are told to, rather than losing their jobs.  My apologies to all dogs.  
• The press has no respect for its audience, and believes their readers/viewers are so stupid that they will believe any headline that is printed.  This is probably true day-to-day, otherwise why would they keep doing it, but I believe that on the margin, this argument falls apart.  That time is coming, if my prediction is right.  
• Incredibly, the housing market does appear to be making a bottom, finally.  But the cacophony of false calls year after year, makes it hard to discern this, if you're watching casually from the sidelines.  And a bottom is not a new boom, it's stabilization at the bottom. 

Next up:  How the BLS distorts labor statistics through unfathomable "revisions" and by using fictitious  job growth via the birth/death model.  The short version is - 

Q:  Why Use the Unemployment Rate Instead of Total Employment in Reporting Labor News?
A:  Because It's Harder to Manipulate Total Employment.  

Cheers.