No Housing Recovery Unless Residential Construction Spending Stops Falling

Wednesday the Census Bureau revised its estimates of construction spending January 2007-April 2009. The revision says that more of the INCREASE in non-residential construction spending occurred during 2007 than occurred in 2008 (to see the time series prior to the revision, see here). Still, non-residential construction is higher now than it was when the recession began.

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Wednesday the Census Bureau also released an estimate of May 2009 construction spending. Residential spending continued to fall. Private non-residential spending increased, but little.

I have noted that construction could bottom out and recover without a rise in private construction, because the private activity would be crowded out by public spending. However, the public spending fell too.

Housing prices would likely stop falling, and begin to rise, before construction spending recovered because prices can adjust more quickly. Nevertheless, a housing recovery cannot be declared until residential construction spending stops falling.

Comments

[crewman:]

Isn't that like saying oil prices won't return to $140/barrel until we start drilling more oil. From my perspective, if you build more homes you increase supply. Increase supply will drive down pricing.

Jul 01 06:40 PM

[Jimmy K:]

I feel better knowing that Housing bottomed in April. Thanks Casey!

Jul 02 08:29 AM

[swalter:]

How is this possible? You have been indicating for a while that we had reached the bottom.

Jul 02 08:42 AM

[Accuriz:]

Housing construction will remain low until the over supply of housing is absorbed. The Federal government should look at a stimlus program that will spur the construction industry such as repairing the massive interstate highway system, building a Federal Energy Grid and building energy plants that will bring down the cost of electricity to homes. If they do this, the taxpayer will actually see a return on their tax dollars.

Our report: www.accuriz.com/RealEs... called Housing in Crisis indicates that it will be several years before residential construction nears 1 million new units a year.

Jul 02 09:34 AM

[HardwoodFlo...:]

Accuriz, while inventories are high relative to sales they are not high in aggregate in terms oh historical figures. Part of the problem is anemic sales figures- which have been relegated to first time buyers and distressed sales.

Herein lies the bigger problem, until the JUMBO market comes back housing will remain lousy. With a lousy market people are not willing to sell into it thus creating a "move-up" market. So we get a negative feed back loop. Poor housing sales, weak housing outlook, weak housing outlook low sales figures.

Until banks stop with only writing one kind of mortgage (those backed by FHA) the market will not return and this segment of the economy will remain stagnate.

Jul 02 02:22 PM