growth in 2 ways
The announcement on Monday from the U.S. Census bureau reporting that construction spending grew significantly in May from the previous year. Click image to enlarge.
One of the reasons the stock market has acted as if it is bi-polar – with wild swings – of late is that investors don’t know who or what to believe.
For instance, a report from the U.S. Census Bureau on Monday shows a not-surprising (to some In the Know) robust housing market.
Construction spending of $875 billion in May was up 0.5 from the revised April numbers, and up 5.4 percent from the previous year. A healthy gain. (Hat tip: Calculated Risk
Construction is a major segment of the economy, and it will ultimately boost consumer spending on big-ticket items like refrigerators and furniture.
One component, residential construction – homes, condos and apartments – was up 1.2 percent from April.
During it’s five-year nose dive, construction spending dragged the economy down; for the past year it has changed course and is now boosting growth.
A home for sale in my neighborhood. There are very few of them, driving up the prices of others ¬– like mine.© SGE, Inc. All rights reserved.
According to Calculated Risk, “Private residential construction is usually the largest category for construction spending, and is now the largest category once again. Usually private residential construction leads the economy, so this is a good sign going forward.”
So what was it that caused the market to slump two weeks ago?
Well, remarks by the Chairman of the Federal Reserve Bank Ben Bernanke, who, ironically, said the good times were ahead!
I blogged this on June 21 in “Bernanke says economy on mend, traders swoon”
Even before that, on May 8, I noted the uptrend in housing and asked Is a new housing bubble one the way?
It pays to be In the (K)now.
One of the places I check is the Department of Numbers, where one can find weekly updates of asking prices for homes in most major real estate markets in the country.
Its latest report shows the median asking price in Los Angeles was $489,475 in June, up from $350,000 in June 2012.
That’s huge! Almost 40 percent.
If that is only half right, this is certainly looking like a bubble, again.
It is reasonable to speculate that the Fed is watching this situation with a microscopic eye, worried of repeating Alan Greenspan’s mistake of letting that huge real estate bubble from 2000 to 2005 expand until it almost blew up the economy.
Is this time different?
Well, there are some very significant differences. No job-no income-no questions mortgages drowned with Countrywide and other lenders of its ilk. Although not a single banker has been criminally prosecuted for the biggest banking fraud in American history, the system is a little more robust these days.
What’s driving home prices through the roof is lack of supply.
The same Dept. of Numbers report for Los Angeles shows inventory of homes for sale in Los Angeles down 40 percent over the past year. Supply and demand are way out of whack – well in some areas anyway.
I’m laughing all the way to the bank. Escrow closed on my Pasadena home on June 1, 2012. Do the arithmetic.