Friday, October 17, 2008

Why is building fewer new houses bad?

Much was made today of the significantly lower numbers reported related to new housing starts and new house building permits. The CNBC talkers and their guests seemed to be unanimous in their opinion that this was a bad thing and pointed to a more protracted recession than they had expected.

Why is lower housing starts bad. Isn't this the way the economy is supposed to work. We have a glut of unsold new homes and unsold used homes on the market today in the U.S. Isn't it is a good thing that more new houses are not going to be added to this inventory.

The commentators discussed the impact on construction jobs and housing material companies and all other offshoots of the residential construction business and they are absolutely right, it will have an impact. But that must happen in order for the problem to eventually be corrected. Even the carmakers know that if they aren't selling the cars they build they need to cut back on production.

Lower housing starts is good news for the long term, and even for the short term from an investing perspective.

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