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Picture this: a U.S. neighborhood where no homes are being constructed, for miles. In the current economic climate, the above could be a snapshot in any region of the country (or, sadly, in every region of the country).
U.S. housing starts fell to a seasonally-adjusted annual rate of 965,000 in July, the U.S. Commerce Department announced Tuesday (pdf). It was the lowest level for housing starts in 17 years.
Economists surveyed by Bloomberg News had expected July U.S. housing starts to total 950,000.
Further, housing starts have declined 29.6% in the past 12 months. Economist Glen Langan told BloggingStocks Tuesday he knows why.
"It doesn't take a Harvard mathematician to deduce this one. Builders are competing for sales with the large supply of foreclosed homes, as well as with home owners in good standing with banks, who are trying to sell their homes," Langan said. "So the great U.S. homebuilder pullback continues."
The U.S. economy is growing at a minuscule rate or is already in recession. Job growth, save a few sectors, is non-existent. Bank mortgage qualifying requirements are at their most rigorous levels in a decade. Investors / readers ask, 'where are the buyers going to come from to spark a rebound in the housing sector?'
"That's a good question," Langan said. "Right now, there isn't a catalyst to jump start sales or the economy, and it's a major concern. The housing sector is suffering from both the rise in foreclosures during 2007-2008 and a classic overbuild that typically occurs during housing booms. In this particular cycle, the overbuild was really high in Florida, California, and parts of the Southwest U.S."
Further, since the overbuild has been high, the length of time needed to work-off that excess will be longer, particularly in the aforementioned high-build regions, Langan added.
And Langan's timetable for a return to normalcy in the housing sector, with a 3-4 month supply of homes, nationally, with stable/rising prices? "Late 2009, if we are lucky, but there's only a 10-15% chance of that. More than likely, the housing slump continues well into 2010," he said.
Housing Sector Analysis: A poor July homebuilding stat and an equally sobering outlook. As economist Langan outlined, the U.S. housing sector's fate, like the U.S. economy's, is linked to the appearance of a catalyst -- something that will create demand for homes. Here's hoping that catalyst appears soon.
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Reader Comments (Page 1 of 1)
8-19-2008 @ 1:53PM
David Huston said...
But that's good news, not bad news: the present problem is inventory which in turn is a function of foreclosures. Untill inventory is dramatically reduced, new homes ought not be built.