- The absolute construction starts numbers are big -- a combined total annualized 1,099,000 new units -- but roughly the same as rock-bottom in each of the last five recessions.
- No inventory is a reasonable situation early in a recovery after a bad bust. It takes a while to get the engine going -- labor, land and materials.
- Sustained increases in price should have fixed all of the usual problems and have not.
My beloved business partner of 20 years kept a few cartoons on her office door.
The top one had a living room scene with a middle-aged couple on a sofa and opposite chair. The wife is speaking, and her caption: “Harold, I married you for your money. Where is it?”
U.S. recession and recovery cycles from World War II until 2000 were clockwork affairs. The Fed, worried about inflation, would raise rates until housing cracked, followed by a recession and rising unemployment removing the inflation risk, which was followed by lower rates and strong housing recovery, pulling the entire economy ahead.
Construction starts in January of new single-family homes were up 3.5 percent from one year ago, but multi-family ones fell 2 percent. A pokey show.
The absolute numbers are big, a combined total annualized 1,099,000 new units, but roughly the same as rock-bottom in each of the last five recessions, going all the way back to the 1960s, when the U.S. population was only two-thirds of today’s.
[graphiq id=”lgCw19NdmJv” title=”Total Construction Spending on Residential Projects” width=”600″ height=”523″ url=”https://w.graphiq.com/w/lgCw19NdmJv” link=”http://time-series.findthedata.com/l/15437407/Total-Construction-Spending-on-Residential-Projects” link_text=”Total Construction Spending on Residential Projects | FindTheData”]
The recovery peaks (ignoring the overbuild ten years ago, long-since absorbed): in the 1990s, 1.5 million units; in the 1980s, 1.8 million; and in the 1970s, 2.1 million.
There are several ways to read these numbers.
First: every Realtor in an economically healthy part of the country says “no inventory,” nothing to sell. That’s a reasonable situation early in a recovery after a bad bust. It takes a while to get the engine going — labor, land and materials.
But this recession ended seven years ago.
So, do we have engine trouble? Credit too tight? Land too scarce? Too much skilled labor decided “to hell with construction boom-bust” and switched to software? Builders are too scared of another dip?
Sustained increases in price — which we’ve had, 5 percent or more compounded for seven years — should fix all of those problems and have not. Mortgage rates are back down to record lows, enough to excite the dead, but not new construction.
Or is demand not as strong as we think? Economists argue daily about how many people of what age have dropped out of the workforce and why. The only thing I know for sure: people out of work are not buyers. Another headwind: a Kaiser/BLS report says that since 2005 the cost of health insurance has risen 60 percent, almost exactly triple the rate of inflation.
I don’t have a clear answer. I’m with Harold’s wife. And I’m going to remain suspicious of this recovery and the Fed’s plans to tighten until I see the money.
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.
