Peter Pays Paul

Now I know that journalists are paid to sell newspapers, but sometimes they make absolutely no sense to me at all.

Case in point: The business section of today’s Contra Costa Times and the business section from yesterday. Yesterday’s headline reads “Area home building bucks state trend”. The article states that new home construction permits in the East Bay increased 5% for January and February from the same time period last year. Translation: 5% more permits were pulled this January and February than last January and February.

The article quotes Joseph Perkins of the Home Builders Association of Northern California as follows:

“We don’t see the kind of precipitous decline we see at the state level in the East Bay in terms of single-family (homes), and that’s encouraging. It also speaks to the fact that demand is still there.”

Today’s headline is as follows:”Housing slump may dent job growth”. The opening line of the article says:

“Construction employment losses linked to the faltering housing market may slow the East Bay job market, university researchers warned Thursday.”

But I thought you said yesterday that more houses were being built this year than last year? This is what I get for reading the paper two days in a row. Today’s article did say that the economy still expects to add jobs during the next three years. A slow down in housing manufacturing may slow the job growth, but won’t reverse it. So the headline may be dour, but the hidden truth is that job growth is still expected.

Projected job growth is great for real estate prices. It means that prices should increase over time. Employment growth leads to increased demand for housing of employees to fill those jobs. Housing prices should increase as demand increases. As housing prices increase, builders will likely increase production to meet that demand. Increased production demands more workers, increasing employment. And the cycle begins anew.

The news can be an investors best friend or their worst enemy. You must read the news with a discerning and critical eye, in order to decipher the truth behind the text and to act according to the true message and not according to an interpretation of the true message.

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