Housing Starts and Vacant Units: No "V" Shaped Recovery

[AllentownJake]

On Friday I posted a graph showing the historical relationship between housing starts and the unemployment rate (repeated as the 2nd graph below). The graph shows that housing leads the economy both into and out of recessions, and the unemployment rate lags housing by about 12 to 18 months.

It appears that housing starts bottomed earlier this year, however I don't think we will see a sharp recovery in housing this time - and I also think unemployment will remain high throughout 2010. As I noted in the earlier post, there is still a large overhang of vacant housing in the United States, and a sharp bounce back in housing starts is unlikely.

It is very unlikely that there will be a strong rebound in housing starts with a record number of vacant housing units.






http://www.calculatedriskblog.com/2009/11/housing-starts-and-vacant-units-no-v.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29&utm_content=Google+Reader

[HughMoran]

1. Could be

O' soothsayer - we'll give you a penny if your source is correct.

[AllentownJake]

2. Pretty easy to understand

The entire supply and demand thing.

[DJ13]

4. Not so easy for some

There are people who think that the price of oil should skyrocket despite a multitude of tankers leased by large speculators sitting loaded with unneeded oil around the world.

[HughMoran]

5. Yes

it's not such a difficult conclusion to draw based on the number of people who are out of work.

No work, no mortgage (well, at least in theory :evilgrin:)

[FBaggins]

3. It really doesn't show that.

There isn't enough correlation between the two data sets to make the statement "The graph shows that housing leads the economy both into and out of recessions, and the unemployment rate lags housing by about 12 to 18 months."

You'll note, for instance, that starts peaked in 1984 and then fell into the 90-91 recession, while unemployment improved right up until the recession began... and that starts climbed starting months before the 2001 recession while employment was falling.

Moreover... the graphs don't relate to the post. Why say "there won't be a v-shaped recovery"... then produce a chart to back it up... only to have to say that the chart doesn't support the claim?

[AllentownJake]

7. I think you are misreading the graph for 1984

For 2001, the author says the trend was different because the bust than was led by the dot.com bust and the nature of that recession being different.

I have my own theory for 2001 and that the asset bubble was re-inflated by the FED with lower interest rates longer and more than it needed to be in response to the 9-11 attacks.

[FBaggins]

13. Can you say how?

1984 showed a peak of 1.4 million housing starts. Even if you ignore that as a spike, the trend clearly peaked in early 1986 and 1987. The trend clearly reversed from 1987 onward while employment continued to improve just about up the start of the 90-91 recession.

Regardless... why put up a graph... only to state the conclusion the graph supposedly shows and say that you don't think it will happen this time?

I have my own theory for 2001 and that the asset bubble was re-inflated by the FED with lower interest rates longer and more than it needed to be in response to the 9-11 attacks.

A reasonable (and common) theory. It's really the Fed's standrd M.O.- They tend to overshoot in both directions (because of the lag from decision to impact)... which means it's not unlikely that the current low rates will be maintained beyond the ideal point.

[AllentownJake]

14. I'd have to look at the FED's behavior in 1987

Volker was still in charge in 1984 and he was much more responsible and unwilling to bow to political pressures than Alan who took over in August of 1987. There was a crash that year that quickly recovered so I'd have to see what Greenspan did in reaction to it.

The Federal Reserve used to behave better before the Chicago School boys got there.

This time around, I think the over-supply is going to catch up and that even now houses are overvalued with American's income levels and debt carrying.

[FreakinDJ]

6. It's Shitty our economy is so closely related to housing now

Come here Sonny and let me tell you bout the Good O'l Days when we actually had MANUFACTURING in this country.

I remember the recession of 81-82. Purely by design of Ronald Reagan and his Crack-Head Trickle Down Economics Team. While Housing bottomed out in the Over-Built West Coast, Manufacturing in the Iron-Belt picked up nicely. Soon the Whole Economy was humming again.

[SoCalDem]

22. The US is like a specialty restaurant

that gives table-side cooking lessons & hands out free recipes..and then wonders why diners stop coming to the restaurant..

[HughMoran]

8. I was hoping for an "H" shaped recovery

Help!

[pscot]

9. Interesting chart

Before 1980 the vacancy rate seems to oscillate between 2.5% and 3%. After the first Reagan recession it rises to 4% and pretty much stays there. The current recession has driven the vacancy rate to 5.5%. If it follows the pattern it may just stay at that level. The chart suggests that prices still have room to fall.

[AllentownJake]

10. They have to

Income is falling and there are less jobs coupled with overbuilding.

Everything comes to Supply and Demand.

[Capn Sunshine]

11. Housing starts aren't where to look for upticks in the economy

There's an inventory overhang from the last down cycle. ANY housing starts at all should be celebrated, because this activity portends an end to excess inventory.

[AllentownJake]

12. Good point

however, the nature of this recovery will be interesting. You can't look to manufacturing because it is cheaper to build most things overseas, you can't look to housing because there is a supply issue in existing inventory, you can't look to the finance sector because it is already to high of a percent of the economy than to be sustainable.

Where do you look?

[Capn Sunshine]

15. There's the rub my friend

I think we're looking at a whole new paradigm- unless they count alt energy jobs as manufacturing, and that's where all the growth is going to be....

[FarCenter]

16. Health care is a growing part of the economy

All the Gen X, Gen Y, etc, will be emptying the Boomers' bedpans.

[AllentownJake]

17. More like the boomers will spend the last of their savings on dying

and most of the wealth will be scooped up by companies paying Gen Xers and Yers to empty the pans.

[dionysus]

18. jake, you spend an abnormally large amount of time preaching doom and gloom....

[AllentownJake]

19. I look at the country right now as the Soviet Union circa 1986

and Obama as Gorbachev.

[dionysus]

20. do you beleive the end of the country is imminent?

[AllentownJake]

23. Define end and define immenent

I beleive we have begun a very long slide of standard of living and and end as our position as the world's only super power that will result in a re-evaluation of what the country values.

Whether it is a bad thing or a good thing, depends on how the citizenry and politicians react to it.

[conscious evolution]

21. Good point

Have you ever compared the yearly retirement rates with the DJIA?
Very interesting,to me anyway.
Whats pretty neat about it is,thanks to the Census Bureau,one can project into the future what the retirement rates are going to be.With that info one can see the general trend of the stock market.