Thursday, June 16, 2011

Housing starts are still flat, but good news is accumulating

So we've now had two and a half years of very low and very flat housing starts. It took the nation's homebuilders three years to throttle back the construction of new homes by about 75%, and they've held to those minimal levels since late 2008. Residential construction is now only about 2% of GDP, which is almost next to nothing.

If starts were going to decline further, it would have happened by now. In the meantime, new household formations have continued at a pace substantially higher than new home construction, and so the excess inventory of homes has been sharply reduced. The next shoe to drop is painfully obvious: a shortage of homes is inevitable at some point, so new construction, and housing prices, will have to start picking up. It's only a matter of when.

The housing price data from Radar Logic, shown in the chart above, offer a tantalizing hint: the long-awaited rebound in the housing market may already be underway. It's too early to be sure, since the price bounce is still very modest, but the passage of time suggests this bounce may well be the real thing.


brodero said...

The foreclosed homes on my street
have been sold and are being redone
now. Definite difference in price
in the distressed homes and once they are gone....back to people with equity and some bargaining power.

John said...

Real estate markets are all local, and they can all be different. In Destin,Fl. agents are telling me inventory is down 50+% and the market is beginning to be picked over. This is a very regional market but foreign (overseas)buyers are here and buying.

RSFX said...

Scott, do you happen to have a chart of 'household formation' with a bit of historical information (going back at least two decades) for comparison? Last I read the rate was way down. I did some looking but was unable to find anything that would confirm your statement.

PS. I enjoy your blog and especially the charts (you cover some areas that most don't even mention).

Scott Grannis said...

Re: household formation. I don't have the info at my fingertips, but I know that Brian Wesbury has often cited household formation statistics on his blog. You might try checking there:

Or checking the Census Bureau's website.

PH said...

what is your opinion about philly fed today? I´m very very worried about activity in US...if US enter a low growth scenario i dont know how FED will react...FED has no tools anymore

Bill said...

The significant increases in rent now being experiences are bound to drive an increase in housing prices as people begin to see homeownership as a relative bargain.

Scott Grannis said...

Re Philly Fed: I don't pay much attention to the regional indices. In any event, I continue to believe that supply chain disruptions are the driving factor behind a lot of the recent weakness in regional and manufacturing surveys.

Ben said...

Hi Scott

Interesting graph on residential construction as % of GDP. I've created a similar chart, but have it peaking at just over 5% in 2005. Which NAICS series did you use in "residential construction?"

Scott Grannis said...

My data comes from BEA's GDP tables.