After reading my housing starts post from yesterday, Hovnanian Enterprises (HOV) CEO Ara Hovnanian was kind enough to have his investor relations department send over some additional information on trends and demand for U.S. housing starts. Of course, we need to keep in mind that Hovnanian is a home builder, so they have a dog in this fight, but their data certainly jives with the other figures I have seen. Here are some of the more interesting data points included in their materials as it relates to what I wrote yesterday.
- Average U.S. housing starts since 1971 have been 1.6 million per year.
- Demographers estimate new home demand of 1.7-1.9 million units per year going forward.
- Prior cycles all showed housing start troughs of at least 1 million units per year (1975, 1982, 1991), compared with about half that level in 2009, indicating an over-correction during this current housing cycle.
- Housing starts per capita have hit the 7th lowest level on record, with the prior six lows occurring during World War I, World War II, and the Great Depression.
Now, one of the reasons we are likely seeing this “over-correction” in housing starts is due to the credit crisis and the huge number of foreclosed properties coming onto the market. Foreclosure filings are running at about 300,000 per month right now, which equates to more than 3.5 million foreclosed properties per year. As long as foreclosures are at such a high level, in my view, it is probably unlikely that housing starts could rebound to a more historically normal level. However, as the economy continues to improve and unemployment slowly drops, foreclosures will decline as well. At that point, there appears to be nothing in the demographic data that suggests that housing starts should not rebound to a level of at least 1.5 million annually over time, which is nearly three times greater than today’s annual run rate.
Later this week I will post some information on the dozen or so large publicly traded homebuilding companies I have taken a look at and will highlight a few that I think represent excellent ways to play an eventual rebound in residential housing starts.
Disclosure: No position in Hovnanian Enterprises at the time of writing, but positions may change at any time