New housing starts are down to a little more than 300,000 units. That’s the lowest level ever recorded by the U.S. Census starting back in 1963. Have a gander at this graph (via Calculated Risk).
Oh, and just for fun, housing supply is also at record levels (also via Calculated Risk).
So, what’s in store for the housing market – with all those jumbo (expensive house) loans in default, the economy worsening, and the mortgage market for anything beyond a conforming loan ($417,000 most places; $625,000 in some higher-priced locations) requiring 30-40 percent down payments and rates of seven and eight percent or more?
February 10th, 2009 at 2:37 pm
I’d like to know how these changes in the housing market stack up against demographics and housing turnover rates. What is an optimal number of houses in comparison to our population and our demographics?
February 10th, 2009 at 2:48 pm
The good news on both of those fronts is (1) new housing starts cannot go much lower, we’re already at lows that set 50+ year records; and (2) much of the “supply” overhang in the form of foreclosed properties or new construction properties that never sold have been scarfed-up by those who have the means to take advantage of the crisis. Ergo, we’ve seen the bottom or are close to it, housing simply cannot get much worse. The December and January numbers show increases in housing sales, depressed markets combined with a new tax credit and low mortgage rates certainly will equal more action in the housing market.
But it’s time to begin sorting-out the winners and losers. In one corner, we have the baby-boomers who have in addition to have seen the erosion of their earning capacity as the new economy has rendered many of their skill-sets obsolete and the diminution of the retirement accounts and 401-k’s, now seen their homes plummet in value. In the other corner, we have the X & Y generations, particularly the under 30 set, who now have the opportunity to be first-time home-buyers and the best buyer’s market seen in any current living person’s lifetime and the flushing-out of middle and senior managers who might have stuck around longer in the workforce had the old economy not collapsed. These new workers will be part of the teams and companies that re-build the economy. The boomers will be working at reduced wages longer into their lifetimes without the security of their retirement accounts and in houses that have declined in value.
As much as I am an admitted boomer-basher, this is a scary proposition. How will society cope the collective misfortune of such a large group, particularly as they enter into the periods of their lives their health care and caretaking needs will increase? What kind of backlash will there be?
February 10th, 2009 at 3:54 pm
If you look at the “new houses” per capita trend for the US it has been declining for 40 years. Although I think there is a logic to that — new housing stock construction is not 1:1 for housing demolition since houses are not “consumed” – but it makes forecasting an “appropriate” housing supply number difficult.
The more challenging question I think that relates to both of your comments is not purely demographic — the numbers are there to absorb boomer housing (Boomers = 78M, Gen X = 51M, Gen Y = 81M, roughly) but how much of the boomer housing is located in areas that are undesirable for subsequent generations? That is, how do you sell single family detached in suburbia when what the market demands is high-density urban-related product? I think it is less a problem for the builders than it is for the resale market.
Additionally, with much of the boomer-era demand fueled the creation of two-worker households, which will be difficult to replicate in subsequent generations, what other growth drivers will create demand for those products?
February 10th, 2009 at 11:47 pm
I wish you could draw the conclusion that the housing market has bottomed just by looking at a historic nadir in housing starts and a historic glut of existing housing supply, but consider “the facts on the ground”:
1. when the so-called subprime crisis started, the U.S. economy had 3.6 million more jobs.
2. before the financial panic of 2008 we had $10 trillion more in our retirement accounts
3. before the financial panic of 2008, Bear Stearns, WAMU, Merril Lynch, Wachovia, Lehman, Fannie Mae, Freddie Mac, AIG and 330 other financial institutions were solvent.
4. before the crisis began Taxpayers had billions less in obligations to the aforementioned companies
5. before the crisis began, the federal reserve never had to lend banks more than $10 billion in any single year, since the crisis the lending is eclipsing $900 billion, courtesy of the Term Auction Facility, Primary Dealer Credit Facility, Term Securities Lending Facility, and the TARP (Troubled Asset Relief Program)
6. before the crisis began the Fed actually used to publish the M3 money supply data on a weekly basis, since 2006 they’ve stopped because they said the costs of collecting and reporting it outweigh the benefits.
Wishful thinking is nice, but reality is a little different. Don’t fool yourself into thinking the housing market has hit bottom. The economic realities today are a hell of a lot worse than they were when the housing bubble first popped. You might want to rethink your position about the future of the U.S. Housing Market.
February 11th, 2009 at 11:09 am
Great posts above. My suspicion is that you can start calling my generation (x) officially the sandwich generation. My wife and I are raising a teenager daughter, while taking in a mother-in-law. I have a feeling this scenario will play out on a bigger scale as the boomers find out they don’t have what they thought they would.