Approximately two years ago, we began
suggesting that the US housing market was in the process of bottoming and 2012
seemed to be a year in which new home construction and home sales gathered
upward momentum. However, recently there seems to be near euphoria regarding
the “strength” of the housing market and its ability to contribute to economic
growth. We agree that housing is in the process of recovering, that it
contributed to economic growth last year and is likely to do so again this year.
However, the US housing market remains anything but strong. Here is some
perspective:
·
In
December, construction began on 954,000 homes on an annualized basis, the best
month for housing starts since July 2008; twice the number started at the nadir
in April 2009. However, that would have represented one of the worst months
ever prior to the crisis. US housing starts data dates to 1959. In only 22 of
588 months from 1959 through 2007 were annualized monthly starts less than 1,000,000.
In other words, December’s much ballyhooed starts figure would have fallen into
the bottom 5% of monthly starts from 1959-2007.
·
In
2012, the US began construction on 780,000 dwellings, more than in any year
since 2008. That represented an enormous increase of 28.12% over 2011. However,
that is well below the lowest number of starts for any pre-crisis year. Prior
to 2008, the lowest number of starts in any one calendar year was 1,013,900, in
1991. In other words, the US began construction on 23% fewer homes in 2012 than
in any year from 1959-2007. The median number of starts from 1959 through 2007
was 1,507,600 starts, or nearly twice as many as last year.
Summary:
The housing market has been getting better.
Starts, sales, and prices are on the mend and housing is once again
contributing to GDP growth. Those are certainly positives, as is the fact that
after five years of moribund starts, the nation is likely in need of
replacement stock (certainly portions of the mid-Atlantic and Northeast are
after the hurricane). Yet the absolute level of activity in housing remains
very low, far lower than at any other point in the 50 years prior to the crisis.
While we expect housing to contribute to GDP, that contribution will be modest as
housing represents a far smaller portion of the economy than it was six years
ago. In short, the housing market is improving, but it is anything but strong.