Tuesday, July 19, 2011

The 2 1/2 year bottom in housing starts

Housing starts have been incredibly weak for the past 2 1/2 years, much weaker than at any time since records were first kept beginning back in 1959. As a result, residential construction has fallen to a record-low 2% of GDP, after averaging around 5% since WWII. During this extended and bitterly painful construction collapse, the economy has recovered from a severe recession, personal income has grown 8%, retail sales are up 15%, after-tax corporate profits have surged 38%, Apple stock has more than tripled, households' net worth has risen by over $8 trillion, and the U.S. population has increased by about 6 million, among a host of other notable milestones. Housing starts are almost certainly well below the rate of new household formations, so every month that starts remain at currently depressed levels puts us one month closer to an inevitable boom in new home construction, since the excess inventory of homes is shrinking daily. The outlook for housing is thus likely to be stable at the least, and eventually extremely positive.


TradingStrategyLetter - Weekly Summary said...

Right On!

Bill said...

Here in Atlanta housing is still very dead and the main reason we're the only major city with negative job growth year over year. I think it will stay that way until we burn off the foreclosure inventory. We are seeing a pick up in commercial real estate sales since values are very attractive but we're still probably a couple of years away from recovery.

Benjamin Cole said...

Some say the housing slump caused the economy to tank.

Others are of the view that a slowing economy, and Fed tightening in 2007-8, led to slowing household formation, leading to the housing slump, leading to bank problems.

The solution to the housing slump is bigger general economic growth.

That will come when the Fed gets serious about growth and not just fighting inflation. Obama needs to become a pro-business Dem too.

The Bank of Japan showed what a central bank can do to a country through tight money.

Oh, Japan avoided the housing bust--house prices in Japan fell all through the 2000s, as they did in the 1990s as well.

Tight money is a noose around an economy's neck.

John said...

The house-bubble ATM was a flawed substitute for growth in wages. The middle class fell for a trap. Home equity mortgages and easy credit maxed them out. The commodity bubble of 2007 pushed them over the edge.

Benjamin Cole said...

One nation dodged the housing bubble: Japan

It's house prices went down all through the 2000s, as they did all through the 1990s.

No bubble. No inflation.

Cabodog said...

Presently, the real issue for housing is that Joe Six-pack can't qualify for a loan.

However, lots of investors out there are buying up homes and renting to Joe; and planning later to sell to Joe (at higher prices) once credit loosens and Joe can finally qualify.

In our hard-hit community, we're seeing limited new construction in the low end (sub-$300,000).

I firmly believe that we are heading for a housing shortage in the next few years, especially as rents ratchet higher from the increased demand.

Real Estate ETFs are heading higher.

Buying real estate now is a no-brainer investment for those that can buy with cash or qualify.

Scott Grannis said...

Cabodog: it's amazing how the market can find ways around problems.

Donny Baseball said...

I don't disagree entirely, but Dodd-Frank has driven up closing costs 9% from last year, so that is another couple hundred bucks buyers have to come up with on top of their 20% downpayment. The housing recovery is coming, but it could be sllllloooowwwwww in getting here...

EthanJoshua said...

The housing bust in Southern California is clearly negatively impacting the California economy and the national economy at large. Sellers are desperate to sell. Thanks for share this informative post.
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