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On Location with Housing Starts

Posted by Joseph Trevisani on Apr 16, 2015 6:01:00 PM

In the home construction market, context is like location in real estate, just about everything.

Housing starts rose 2.0 percent in March to a 926,000 annualized rate from 908,000 a month earlier. And while this is down from the recent peak of 1.081 million in December and lower that the 1.015 average of the previous 12 months, it looks pretty good compared to the 773,000 average since the end of the recession in June 2009. 

The historical context however is quite a different story.

The rate of housing starts in March was just two-thirds (68%) of the 1.365 million average of the 30 years beginning in 1985.  The 773,000 average since the end of the recession is a bit more than half (57%) of that generational building rate. 

Whatever period you isolate from the 57 odd years of this survey which began in January 1959, even the recessions, housing starts were considerably higher than they have been over the last six years, often more than double.

In the thirty years from 1975 to 2005 housing starts averaged 1.54 million each year. Leaving out the construction bubble years of 2000-05, the average was 1.48 million annually across 25 years. Over the 41 years of the series from January 1959 until December 1999, that is the record of U.S. housing starts minus the bubble, financial crash and aftermath, starts average 1.508 million each year.

In the history of this series there is no comparable period of sustained low activity as the six years from January 2009 until now.  During the previous construction troughs in 1966, 1974-75, 1981-82 and 1990-91, the average starts were 931,000, 976,000, 905,000 and 942,000 respectively.

Even the 1.003 annual average of the past year is lower than all but 23 months of the 675 months since the survey began in January 1959.

From January 2000 to January 2006, at the peak of the home construction boom, housing starts averaged 1.80 million annually. That is 17 percent higher than the historical average of 1.54 million from 1975 to 2005 and the number of excess homes built during the boom would have been 1.56 million.  

But the subsequent decline in new home construction has not been simply a matter of working through an abundance of homes left over from a five year bout of over building.

Since the financial crash at the end of 2008 housing starts have averaged 753,000 a year, 51 percent below the historical average. The deficit of new construction during those six years is an astonishing 4.7 million, three times the over production earlier in the decade.

This reduction of new construction has been mirrored in the collapse of new home sales. From 1975 through 2005 new home sales averaged 741,000 annually. From 2000 through 2005, sales jumped to 1.056 million. Since January 2009 just 377,000 newly constructed home have been sold each year.  

The March figures for housing starts and the February numbers for new home sales, 926,000 and 539,000 are just 60% and 73% of the pre-crash historical averages, 1.54 million and 741,000, for each category.

The recovery in new home construction and sales in the United States exists largely in relation to the post-recession collapse in both markets. 

The U.S. economy will be unable to escape its post-recession GDP growth average of 2.3 percent until the housing market adds at least its historical average to economic activity.   

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

starts 1959 april 16

new sales 1963 april 16


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