Low Housing Start Numbers: Good News for Real Estate

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I am a fan of continued low housing start numbers until the inventory of bank owned homes is mostly absorbed and job numbers start to improve. A problem is that low housing starts equals low job numbers in the construction sector.

I went and found housing starts data for the last 50 years and the current level is unprecedented. An eyeball look shows the U.S. economy absorbing an average of 1.5 million +- over the 50 year period. In only 33 months out of the last 590 has the rate of housing starts fallen below 1 million and then into the 800k to 900k range. Of the 33 months below 1 million, 11 have been in 2008 and 2009. [Source here.]

Current housing starts in the 500k annual range just will not keep up with population growth. The lag time of permitting, infrastructure, building and selling could push housing into a price bubble pretty fast once the economy starts to pick up.

Over the last 2 years homebuilders have built up cash and written down their real estate holdings. They can sit and wait for housing prices to rebound then start building homes that will be extremely profitable for those companies.

How fast this can happen is anyone’s guess. The recent collapse in housing has taken about 3 years. Housing starts peaked in January 2006 at an annualized 2.27 million. 2009 may end up being the greatest time in history to buy a home.

Comments

[Doug Francis]

I have seen builders aggressively adjust their price-points to mirror the $417,000 conforming mortgage cap. It is this magic number in my market area of suburban D.C. that shows strength. As you push over $500k, the new mortgage lending criteria has pinched that market segment of buyers even with good FICO scores. Also, the factor of consumer confidence can't be overlooked.

2009 May 20 09:01 AM

[HardwoodFlooring]

Doug great points. The reason of course if the FHA loans and this is the truth about banks they are not willing to lend. They are not going to help get construction going anytime soon. Forget getting a JUMBO. There was talk of jumping the FHA ceiling to $750K but I'm not sure where they went with that. I know in some markets they did. If they did it for example where I like that would catch probably 90% of the market. Then you would see housing prices climb (because the prices are depressed do to what you site here- the average sales are first time buyers (read starter homes) and distressed sales). The starts are so low for so long it's amazing. But people are not going to sell into a "weak market". Which means they are not going to be buying new homes either. So sales volume will remain anemic like it is now. There is very little inventory but not when compared to total sales. Sales are weak (4 million annualized units). People are going to stay and fix up the place where they live. That way they don't have to risk the market, they don't have to deal with some jerk banker wondering why they got in fight with comcast over a bill and due to the dispute comcast reported them and they have a blemish on their credit.

It's all so stupid...

2009 May 20 10:33 AM

[20dollar]

Properties priced over FHA limits simply are not selling or are selling at HUGE discounts. Private (non government insured money) is very very difficult to get.

Oh and don't forget about "non-owner occupied properties". I am lucky to get 65% LTV on my rentals right now (again private money). It makes it tough for me to pay top dollar with leveage that low. Not to mention my liquidity is squeezed.

So unless something is screaming "buy me" right now, I am not buying. I will mention however, I have purchased a few as of late. They were not only screaming, they were shreiking "BUY ME!!!". So I did. 65% LTV on properties I can buy for 40 cents on the dollar works for me.(especially when they cash flow like crazy).


So I guess it's not all bad if you have a some cash to play with right now...

2009 May 20 01:13 PM