Wednesday, October 17, 2012

Still more signs of a housing recovery

There likely are plenty of people in the world who still doubt that the U.S. housing market is on the mend. They are for the most part fixated on the huge "shadow inventory" of foreclosed properties and the millions of homeowners who are still underwater on their mortgages. But this group doesn't include homebuilders, who last month started work on 872K new homes (seasonally adjusted annual rate). That was 13% more than expected by analysts, and it was fully 60% more than the level of starts early last year. Even just a cursory glance at these charts makes it clear that the residential construction industry has turned the corner, and decisively. This is for real.

The stock market figured out this was coming years ago. The stocks of major home builders are up 56% from June of last year, and up 240% from their recession low. When I predicted in July 2009 that "it's highly likely that if we haven't seen the bottom in residential construction, we are getting very close," I was almost laughed out of town. The bottom had indeed already occurred, but it took two years before the upturn became established.

As Calculated Risk notes, "the US will probably add around 12 million households this decade, and assuming no excess supply, total housing starts would be 1.2 million per year, plus demolitions and 2nd home purchases. So housing starts could come close to doubling the 2012 level over the next several years." Housing is now adding to GDP—after subtracting for most of the past six years—and the process is just getting started. Over the next 3-5 years, residential construction could almost one percentage point a year to real GDP growth.


Anonymous said...

My jaw dropped to the floor when I saw that housing starts number.

brodero said...

The Housing Starts to Total Nonfarm payroll employment ratio is now
.65%...the average for the 1990's was 1.17%... the low for the 1990's was January 1991 at .73%...The 30 year mortgage rate in
January 1991 was's 30 year mortgage is 3.7%

The range in the 1990's was .73% to 1.4%...

marcusbalbus said...

yep, you called it. what a genius

mdelp said...


I like these charts as well as past posts about housing you have written. I have a post on my site that compares the case-shiller price index to private payrolls in california and the results are similar to yours. keep up the good work.