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Housing starts have been bouncing along the bottom for over two years now, after a record-setting collapse from 2005 through 2008. The industry has been in a deep slump that has lasted over 5 years. Residential construction is now only a mere 2% of GDP. If it were going to contract even further, you would think it would have happened by now.
I see the very low and flat trend of starts over the past two years as a good indicator that the housing market has found a market-clearing price and a market-clearing level of activity. Major adjustments have been made, and enough time has passed for the healing process (reducing the level of unwanted housing inventory) to be well underway. For the past two years, housing starts have been far below the level needed to keep up with population growth; therefore, it is only a matter of time before we see signs of a housing shortage and a renewed uptrend in prices.
3 comments:
I hope Scott Grannis right.
Housing prices and sales are another sign that the Fed has lots of room to pour it on.
We are seeing minor deflation yet in real estate and wages.
I worry we will do a japan--fight inflationary ghosts at the cost of real output and investors returns.
I track the number of foreclosed homes
for sale by zip codes... the number
has been declining for the last 2 months across a broad geographical
area from Riverside California,Bend Oregon,Las Vegas Nevada,Dallas Texas,Fort Myers Fla,Ridgewood N.J.
etc....
BTW, it seems more pundits are worried not about QE2, but the end of QE2. A 20 percent downdraft in the DJIA.
Martin Feldstein is among the doom and gloom set.
Bob McTeer, former Dallas Fed head, suggests raising interest rates but going to QE3.
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