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Housing starts grew to an annualized rate of 872K in September, the highest level in nearly four years. This is good news for the homebuilders, but I’d caution that it’s not necessarily good news for the economy. Indeed, the question isn’t whether housing starts are growing, but whether they are growing fast enough to meet demand, which I believe they are not.

It’s possible that this “housing rebound” also comes with a significant amount of inflation (as it did in the 1970’s). While everyone is looking at housing and unemployment as “key indicators” for the economy, those figures can still improve in a stagflationary environment, where real estate is the best investment.

One figure to keep an eye on: the Case-Shiller Price Index. There’s an interesting trend there.  Year-over-Year (YOY) gains in most major metropolitan areas have been subdued or even negative (with some notable exceptions such as Phoenix).  Quarter-over-quarter gains, on the other hand, have been very large.

Atlanta is probably the most dramatic example of this.  In the Atlanta MSA, we’ve had YOY price declines of about -10%. But we’ve had quarter-over-quarter price gains of around 5.7%. That’s a really massive swing, and while prices had fallen too low, I’d be a bit worried about the speed of this shift, as it may be an inflationary signal.  Indeed, in one of my recent articles, I argue that we are starting to see signs of future inflation already in M2 money supply growth.

Of course, it’s still too early to tell. I’d caution that a few months’ worth of data can be deceiving when you look at things in the big picture.  After all,. we had a brief surge in 2010 that ended up petering out rather quickly.  But unfortunately, we can never really no “the big picture” from data until well after events have already happened, so all we’re left with is tiny data points that might hint at it.

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