Dennis Gartman - Housing Will Correct

Dennis Gartman had a letter he sends out every morning. we note that we shall see housing starts for January here in the US later this morning. It will be horrid reading, for “starts� will almost certainly be down in January vs. December and are swiftly approaching 500,000. Several years ago we wrote, as “starts� were above 2.0 million, that that rate was utterly unsustainable and that it would fall over time toward 500,000. We were branded heretics and scoffed at repeatedly. Ah, but here we are, approaching 500,000, and if we must put a figure to today’s report let’s call it 525,000 and be done with it. We shall not put forth a percentage change, for that can make us look inordinately foolish and we’ve opportunities enough for that in myriad other ways. The revisions to previous month’s figures are always so large as to render month-on-month percentage changes irrelevant. What is important is the annualised starts figure, and 525K is our “guess-timate.� We should remember at this point that December's “starts� of 550,000 were already a record low dating back to 1959 when this data series began. In reality, “starts� are probably nearing zero anyway, for all that is taking place in the housing business are “completions.� “Starts� are non-existent almost everywhere… ask any carpenter; ask any architect; ask any banker; ask any builder! They are getting their last partially built homes under cover, and they are finishing those homes that were and are close to finishing; otherwise, nothing! Were it not for the seasonal adjustment factor that adds “starts� to the January figures, real “starts� would be as close to zero as possible. To this end, we hear stories of the large and growing supply of existing homes on the market which is now at 12.9 months of supply as of December. This is a record “imbalance.� If one were to listen to the media, one would surmise that this imbalance shall never turn lower; shall always remain high and shall doom the US housing industry to years of depression. Nothing could be farther from the truth, however, for when “starts� fall toward zero, even the most modest sales efforts, along with the soon-to-be-witnessed destruction of new homes that are unsold and have to be torn down, will send that inventory/sales ratio plunging very, very quickly. Mark our words; by year’s end, that ratio will be back down into single digits, and by a year from now, the ratio will be “hat size� or lower and trending down. ***From the Dennis Gartman Letter.