Single Family Housing Starts: Dog Days of Summer

As we all sit inside our air conditioned offices wondering what will be the next “big” news regarding real estate, the Commerce Department released its estimate of New Single Family Home Construction today.

Stop! We can be happy with this news or we can take it in stride. Every article that I have read, the author comes from a point of strength in that there is some unique data set that only they have access to. There never appears to be any common sense applied and invariably there are always quotes from interested “economic advisors”. The latest news is a classic example.
581,000 new single family homes were built in 2009, according to public records. Now that is a dismal number compared to the hay day of 2005/2006 when over 2 million homes were being built (See Housing In Crisis Report). But is this really a bad number? Every year in the United States, each market replaces existing inventory with new inventory because older homes need to be rebuilt and because of natural disasters. There also is the market for individual, non development homes that are built to meet unique demands of property owners. So 581,000 is actually good number.

But let’s not forget that over 3.5 million vacant housing units that were newly built remain in the market. Let’s not forget that Supply and Demand need to be in balance for a healthy real estate economy to exist. And let’s not forget that supply is reduced by people buying homes and presently this is occurring through natural population growth. So with the national population growing at about 4 million people annually, we will only see about 1 million of the excess inventory absorbed annually. This means three more years before true market levels begin to appear.

Of course in areas where overdevelopment was held in check, the housing markets are already in full recovery. But for areas in Florida, Nevada and Arizona, recovery may be five years away.
Let us know what you think, what you are experiencing in your communities and what you think about the housing recovery!