This may be another head-fake like April '10, when housing starts jumped to 687K, but I think the evidence supporting the notion that housing has bottomed is getting pretty strong. Today's release of September starts was the second-highest since this recovery began, and it exceed expectations by over 10%. For the past five years, housing construction has suffered its worst slump in history, and its about time things started to get a little better. (I'm told that the head of a large local construction recently said "I've been working for charity for the past five years.") At the very least it's safe to say that we've seen the worst, and things can only get better from here.
A powerful recovery in housing starts is not likely imminent, but it is inevitable. Our population is growing and our economy is growing, but the current level of starts is substantially below the level of household formations—if construction doesn't pick up we will soon face housing shortages.
I note further that the Bloomberg index of homebuilders' stocks (see chart above) is up 25% so far this month, after hitting a two-year low (it was as high as 440 in mid-2005). Things are definitely stirring, and the long-term upside is potentially huge.
A feeble recovery in housing it is.
ReplyDeleteUntil the Fed starts targeting nominal GDP, as advised by the Market Monetarists, any real estate recovery is likely to be very muted.
See Japan. Despite zero interest rates, real estate in Japan never recovered from the 1990 dump, and are still falling.
Real estate investors in the US are sidelined now, indicating they think there will be no inflation or appreciation in real estate.
The Fed has to break the ice somehow.
Increasing housing starts is good for construction workers, materials suppliers and hopefully builders. It's interesting to consider how it's good for existing homeowners that can't sell their homes, or banks with supposed shadow inventories of foreclosures. I suppose that builders have increasing confidence is a good thing, but many existing homeowners and lenders would probably like to see more evidence of the housing shortage before cheering new starts.
ReplyDeleteOn the "new household formations" number: what data source do you feel is reliable, and where can that be found? Thanks!
ReplyDeleteI think housing starts is an irrelevant statistic. As randy said, that number means something for construction workers and building materials suppliers in the short term.
ReplyDeleteIn the long term, it may be more useful to look at the homeowner vacancy rates which are, historically speaking, quite high (~2.75% versus ~1.5%). No need to build more houses while a high percentage of existing homes sit vacant. Also high vacancy rates keep prices from rising.
Home prices rise in Las Vegas:
ReplyDeletehttp://www.lvrj.com/business/las-vegas-home-sale-prices-rose-in-september-132162568.html
Las Vegas is quite possibly the worst housing market in the nation -- and even it is showing a slight uptick.
Psst...no recession has started unless the y-o-y change in single family
ReplyDeletebuilding permits has been negative...
brodero - thanks for clarifying the relevance of the data point.
ReplyDelete