Home building construction and permits hit a multi-month low this past month as it becomes more clear that housing demand was pulled forward (not created) as a result of the homebuyer tax credit that expired at the end of April.  There are a few key notes here that you should either accept now or continue to monitor (and accept later):

1. Government Incentives Don’t Create Demand; They Move Demand - The homebuyer credit moved demand forward.  The cash for clunker deal last year did the same thing.  These incentives don’t create new demand.  They simply move demand forward which means there is a massive hole where the demand came from (present day in housing).  You could argue that our policies have been pulling demand forward for years in housing and that game is over – (previous lending standards pulled demand forward for young people who would normally have to save up money for years to buy a home)
2. Housing Hasn’t Bottomed - The housing bubble took years to build (even deacdes).  It will take many years to unwind.  The longer the government puts policies in place to prevent this unwinding, the longer it will take – so far the government has done everything possible to prevent it.
3. The Recovery Isn’t Real - Housing is a big part of the recovery.  As home values deflate further, it will further hamper the economy.  The opposing trend here is that people are simply not paying their mortgages anymore and are instead buying stuff which is propping up the consumer-driven economy.  This obviously isn’t a sustainable trend that will lead to a prospering economy.  If this is what’s driving our “recovery” then Lord help us.

Click here for the details on the home building data that came out today.