Not every sector of the economy is in a V-shaped recovery. Based on housing starts data so far this year, residential construction is in a U-shaped recovery. It sure looks like it's hit bottom, but the upturn is relatively anemic. I look for more improvement over the course of next year, but of the slow type, not dramatic.
I spoke to a developer yesterday and he didn't think there would be much of a rebound in housing until 2011 based on the banks' reluctance to loan for new developments. They want to keep their balance sheets healthy for the coming unloading of non-performing commmercial real estate loans in 2010. They'll be ok but they don't want to lend again until they get rid of the bad loans.
ReplyDeleteAlthough bad for the builders, this may bode well for the housing market generally as the lack of new homes will enhance the value of all existing homes and those that do get built. This is part of the healing process in my view.
ReplyDeleteWhy buy a new home when you can get the deal of a lifetime on a foreclosure at auction?
ReplyDeleteResidential construction/investment has led us out of most recessions, no?
ReplyDeletePublic: Residential construction has turned up sharply in every recession in the past 40+years. But it didn't rebound much at all following the recession of 2001, and it didn't decline much prior to the recession either.
ReplyDeleteThis is excellent for existing home sales and prices. That being excellent for household net worth and the wealth effect that flows from that, this is good for the economy even without the direct effect of increasing private investment. If household net worth increases, that should stimulate either investment or consumption.
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