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How Terrible Housing Data Can Actually Help Push Home Values Higher

Once again, the headlines may be misleading you.  It's a good thing that Housing Starts dropped last month -- despite what the papers say.

A "housing start" is a new residence on which construction has started.  Yesterday, the government released September 2007's Housing Starts data for the country. 

1. There was a 10.2% drop in Housing Starts versus August 2007
2. There was a 30.8% drop in Housing Starts versus September 2006

The headlines are trying to tell us that this is bad news for the U.S. economy.  On the contrary -- this is excellent news!

Determining a home's value is mostly based on Supply and Demand for that particular home.  In its own neighborhood, an over-supply of like homes can be a significant drag on the value of all homes in the neighborhood  This is a concept many people understand.

So, when builders stop adding new supply to the housing market -- on a neighborhood-by-neighborhood basis -- the existing demand for homes can "catch up" with the existing supply of homes.  This can rebalance the Supply and Demand equation and place upward pressure on home values. 

Many homeowners (and future homeowners) can agree that rising home values is a good thing.  Rising home values creates wealth and opportunity.

So, just because the headlines read that the news is bad, that doesn't mean that it really is bad.  Housing Starts are down and that is a good thing.

(Image courtesy: The Wall Street Journal Online)