Housing starts have been bouncing along the bottom for over two years now, after a record-setting collapse from 2005 through 2008. The industry has been in a deep slump that has lasted over 5 years. Residential construction is now only a mere 2% of GDP. If it were going to contract even further, you would think it would have happened by now.
I see the very low and flat trend of starts over the past two years as a good indicator that the housing market has found a market-clearing price and a market-clearing level of activity. Major adjustments have been made, and enough time has passed for the healing process (reducing the level of unwanted housing inventory) to be well underway. For the past two years, housing starts have been far below the level needed to keep up with population growth; therefore, it is only a matter of time before we see signs of a housing shortage and a renewed uptrend in prices.