Housing won't lead the recovery

Led by a huge drop in apartments and condo construction, U.S. housing starts cratered again in April, falling 13% to the lowest level in the post-war era, depressing the bulls and emboldening the bears.

But investors would be well-advised to ignore the housing starts numbers for a few more months, at least. Housing led us into the recession, but it isn't likely to lead us out.

The housing market remains seriously distressed, and this bedridden patient isn't likely to be walking any time soon. Prices are still too high in many areas to clear the glut of unsold homes stemming from too much new construction and too many foreclosures.

That isn't to say the patient's condition isn't stabilizing.

The data from the Commerce Department released Tuesday painted an awfully grim picture of the home-building business, but remember that this report is among the most statistically challenged of any government data. The standard error for the monthly starts data is an astronomical 13%; which could mean the 13% drop in starts that everyone is getting so excited about is not statistically meaningful. See full story.

Over time, the starts data do reveal broad trends that can be trusted. Starts of single-family homes have stabilized over the past three months, and have actually risen at a 13% annual pace after falling at an 80% pace late last year. A few more months of that and we can start to believe the bottom in building may have been hit.

The stabilization in single-family permits over the past five months is even more encouraging, because the standard error is just 2%.

Of course, finding the bottom in building isn't the same as finding the bottom in home sales or prices. The government has tried to revive sales by lowering mortgage rates and subsidizing first-time buyers, but few current owners are willing or able to trade up to a bigger home in such uncertain times.