Great News! April Housing Starts Plummet to Record Low

New housing starts fell 12.8% in April to a record low annual pace of 458,000 while building permits also fell to record lows.
This is actually great news -- unless you're a construction worker, home builder or supplier of related materials.

Why? An oversupply of homes, some 2 million units according to economist Gary Shilling, remains one of the main obstacles to finding a bottom in the housing market. And that 2 million figure doesn't include the "shadow supply" of homes that will come on the market if/when the environment improves; this phenomenon may help explain why DIY retailers Lowe's and Home Depot posted better-than-expected results this week.

Thus, it's paradoxically good news that April starts were down so much and potentially a worrisome sign that construction of single-family units were actually up for a second-straight month. (A steep drop in apartment building construction accounted for the overall decline). The 2.8% rise in single-family homes may explain why home-builder sentiment was stronger-than-expected yesterday, but doesn't help resolve the bigger issue of oversupply.