Why buy a new house?

Two posts in one day!  Oh Frabjas day, calloo callay!

This is something I find very frustrating.  I moved around a lot as a kid.  I lived in 5 homes before I moved out.  My parents never once considered buying a "new" house.  A key economic marker, at least to the guys at Planetmoney, is the number of New Housing Sales, or New Housing Starts.  That is, the number of new houses being sold, or the number of new housing being built.  Neither makes much sense to me.

1)  The population continues to grow.  So we'll always need new houses.  But families die off, move around, houses burn, etc.  My wife's hypotheses is that this number will never be the same, and that excess inventory should be burnt to the ground.  I don't think that extremely, but what I do think is that, this number can't be all that exciting to watch.  The population doesn't change that much.  And yet, look at it.  It's a friggin' roller coaster:

So something must be screwy.  And, it is.  The housing market was a bubble.  People were buying homes and flipping them.  Homes were no longer a long term investment, and so speculators bought several of them, thinking to sell after making minor alterations.  People in my own family owned multiple homes, not because they could afford to, but because they thought they could sell before the bubble burst.

So maybe we should stop looking at this number.  The number should be relative stable, and should only match the need for housing beyond what is already on the market, which is considerable.  Manhattan is really the only place in the country that needs new housing, and frankly, we're a bit over-saturated as well.  Dozens of new luxury apartments opened up in the lowskirts of Harlem and Morningside Heights.  And most of those units are still empty!  Brooklyn had it much worse, and still has huge deserted tracks of useless luxury buildings.

2)  Not thinking about the economy at all, but frankly, there is only one reason to build new house.  Ecobuilding.  My wife's parents are examplar's of this, with the help of a graduate student in architecture, they actually constructed a house built specifically to have a low carbon output, no air conditioner, no gas heating.  It's still a work in progress, but it will be pretty amazing. 

Other than that?  No.  Not once in those 5 moves did my parents even consider building a home.  For one, in an old Connecticut community of bluebloods, development was anathema.  To be sure, they were there, we lived in one for several years.  But I can think of only three developments in the entirety of my town.  When people bought houses, they bought houses in established neighborhoods.

Everything falls apart.  I can see renovations on existing homes.  I can even see demolishing old homes because of filth, contamination, hoarding, damage, unsafe conditions.  But how often is that the case?  How often is it that a home is simply beyond the pale?  I can't think i  t's that often.  Apartment buildings in New York are rarely demolished.  In fact, it's almost impossible to extract some tenants.  There's a building on my corner that has been all but derelict save for one or two filled apartments.  Derelict for at least five years!  That's expensive real estate.  Worth millions and millions of dollars.  And someone is using it to the last drop. 

Bottomline.  I don't think new housing starts or sales should be an economic performance measure.  I think the only reasonable explanation for the chart above, is the proliferation of housing bubbles.

Oy! Idiots!! --New Home Sales in Surprise Drop

I'm going to try and make this brief. CNN reports that there's a surprise drop in new home sales.

I don't see why this is so surprising. Some good data in the article, but it's overall misleading. I'm not blaming the reporter this time--not really.

So new home sales dropped 3.6%. They've been rising for the past five months. But here's the kicker. Nothing has changed. The article even acknowledges that the drop off is likely due to the expiry of the New Home Buyer Tax Credit. A tax credit is a nifty way to stimulate the economy, without making overt signals the free-market flag wavers.

But think of the big picture. Employment continues to worsen--the dawn may be soon, but it's still pretty damn dark. The last estimate I read, in yesterday's Times Op-Ed, suggests the rate will exceed 10% by next year. Where do they think all of that home-buying power is coming from?

Allow me to apply a little amature pyschology, without the fancy words. Late in 2008 the market craters, the banks are closing, and you've started keeping a fat wad of cash under your pillow. January, new president, new times ahead, you start coming out of your fetal position, and start looking around. You know what people say about investing, buy low sell high. You were smart, you were saving your money, you probably would have bought a house in 2007 if you'd had the money saved. Now it's 2009, you have the money, prices are down, and Obama springs a fancy tax credit on you. Great. You buy.

But demand isn't just a current measure-it's a stream. And most of the demand of the last 5 months were from people who were ready to buy in 2008 and just put it off until things settled. So where is the new demand going to come from? Middle class wages continue to stagnate, and more jobs are still being lost than created. What's the big difference? Credit has totally evaporated, and the fake credit of a housing credit (which was a very good idea at the time) is really a go along to get along measure.

Obama had a really good opportunity to change things. But I think his team really wants things to just go back to the way they were--minus the Bush nastiness, of course. Look who his financial team is--all heads of the old order.

But things weren't cool. The kids were not all right. I don't know what the answer is, but I think I have a pretty good idea. The infrastructure of this country is rotten. Bridges over a hundred years old, crumbling highways, terrible rail and freight systems. Subways in metropolitan areas, like New York, falling apart, and totally inadequate to deal with demand.

People talk about Zeitgeist too much, but I have to say it. The Zeitgeist of this country has been in the shitter for 9 years now. The powers that be, the politicians, the media, the CEOs, they don't give us enough credit. We know that the rich are taking their money and leaving the party, we've been watching it for close to a decade. We don't blame them, but then they're puzzled when they don't see economic growth? I've yet to work through a period of economic growth. The Bush Boom was a boom only for the top 1%. That hasn't changed. And it's depressing as hell.