More Housing Starts is BAD!

Can we all get to the point where we can have a decent frank conversation about the state of housing?

We have too many talking heads on TV as well as in the Print/Web Media proclaiming that they see an end to the housing slump.

We have to come to a point where we agree that the problem in housing is the following:

1- FORECLOSURES
2- INVENTORY OF UNSOLD HOMES
3- ROTTEN EMPLOYMENT TRENDS
4- DOWNWARD SPIRAL OF HOME PRICES
5- BAD MORTGAGES THAT WERE SECURITIZED
6- MAJOR CITIES STILL IN STATE OF QUANDARY.

Where in the world do we see any abatement in any of these trends?

So with this backdrop, this morning we got more static coming out on the state of housing.

The headlines were as follows:

U.S. May housing starts surge, biggest gain in 3-months
Housing permits rise fastest since last June

It goes on to state:

New U.S. housing starts and permits surged in May from record lows, while wholesale prices were muted despite higher gasoline prices, indicating the economy was moving closer to the end of a deep recession.

The Commerce Department said on Tuesday housing starts jumped 17.2 percent, the biggest rise in three months, to an annual rate of 532,000 units. This was as ground-breaking activity for multifamily homes surged 61.7 percent after diving 49.4 percent in April.

Even more encouraging for the housing sector, which is at the center of the longest U.S. output decline since the Great Depression, new single family starts rose 7.5 percent, the largest gain since January 2006.

Ground breaking activity for single family homes has now risen for three straight months, an indication that housing investment will be less of a drag on the economy in the quarters ahead, if the trend continues.

Now...I cant fault the government for putting out these absurd reports, that is what they do. They are in the business of vote gathering for what ever party is in power. What I do fault are the ones who have been constantly wrong on housing stating that this is one more data piece that tells us that housing has bottomed.

Lets get this straight....

Rising housing starts is good for economic growth, but the notion that more housing starts is good for the housing market is so patently wrong and disingenuous that I don't know where to begin.

Housing prices must bottom for the economy to truly recover, but that can't happen if
more homes keep getting built. How will supply and demand meet if we build more supply when the problem has been (and continues to be) an excess supply of unsold homes in the system? They won't, which is why a pick up in housing starts will only serve to prolong the housing recession, not help to curb it.