Friday, April 30, 2010

Real Private Residential Investment Sleight of Hand

Back when the Q3 2009 GDP report was first released business media cheered the arrival of the first gain in real private residential investment seen in many years and further basked in the glow of what appeared to be exceptional strength in the component which showed a lofty 23.4% annualized percent gain (later revised down to the still notable 18.86%).

I took exception with the figure on multiple levels as it was clear to me that this was an errant data-point in need of revision, juiced by government stimulus and seriously in need of some context for its proper interpretation.

Today’s advance release of the Q1 2010 report provides substantial evidence that last year’s increase in fixed residential investment was but a blip more or less mirroring other housing trends that were driven by the government tax gimmick.

Of course, the new decline to this component has been largely ignored by business media.

It wouldn’t be surprising if this series lifts going into the second quarter again mirroring the activity occurring as a result of the extended tax credit but in all likeliness this dynamic is merely temporary with the true “organic” trend remaining biased to decline.