Saturday, June 20, 2009

Re-Running the Numbers on Housing

I teach economics and one of the recurring questions I get from students is, "When will home construction come back?" My basic answer is, "When we consume the excess inventory of housing," but people want a date not an event. So here's my best estimate.

Last December, I Ran the Numbers on Housing. It was quick and dirty, and some might call it a SWAG, but there are some real numbers out there that you can use. For example, the Census Bureau just released the May numbers for housing completions - we're running at an annual rate of 811K units. (Table 5)

In my previous post I thought that a fairly normal number should be about 1.6 M per year and that we had an overhang of about that many homes from the peak at the end of 2006. 2007 showed completions of 1.5 M and the 2008 number was 1.1 M. So for a gross estimate, I'd say we burned through about 600 K of the 1.6 M overhang leaving us with 1 M excess homes. If we run the rest of the year at the current 800K rate, we should burn through most of the rest of the inventory by next spring.

At this point, I'll go out on a limb and make a prediction. Housing completions should recover early next year. It will happen later in the states with the biggest problems - California, Nevada, Arizona, Florida and Michigan. It will happen a bit sooner in the rest of the country. Since that is based on completions and it takes a while to plan, permit and actually build a house, activity should see an up tick late this summer or in the fall.

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