Why the Homebuilding Rebound Has LegsBy
Homebuilding is gaining speed because there are shortages of housing in places like the Midwest and Plains states that have stronger job growth and relatively little excess housing stock. The U.S. Census Bureau on Oct. 17 reported a 15 percent jump in the seasonally adjusted annual rate of starts on construction of privately owned housing (PDF) for September, compared with the August rate. Bloomberg reports that the September rate was the highest in four years.
“You need to build homes where people have jobs. So you’re seeing growth in [places like] Texas. Not so much in depressed places like Michigan, Florida,” says Patrick Newport, U.S. economist at forecaster IHS Global Insight.
David Crowe, the chief economist of the National Association of Home Builders, says construction is strong in a band that stretches from Texas north to the Dakotas because agriculture and energy have supported job growth, while there is no big overhang of vacant housing from the construction boom of the 2000s. “We’ve been trying to make that point for a long time now,” says Crowe. “Individual markets are improving. There are more of them doing that, enough so that it’s finally showing up in the national numbers.”
Pessimists on housing long predicted that homebuilding would not resume as long as there was a big overhang of houses left vacant by foreclosure, but that is proving incorrect. Newport says that the indicator of vacancy that he trusts most is the quarterly calculation of the Census Bureau. It peaked in 2008, when 2.9 percent of American housing units were vacant. By the second quarter of this year it was down to 2.1 percent. That’s still above the long-run average of 1.7 percent.
But vacancies aren’t spread uniformly across the country. They’re heavily concentrated in what Crowe calls the “sand states”: California, Florida, Nevada, and Arizona. According to the Census Bureau, over the past year housing starts rose 47 percent in the Midwest, 37 percent in the South, 27 percent in the Northeast, and 25 percent in the West.
The September pop in housing starts was so big that Newport says there’s a chance that the rate will drop back a bit in coming months. But he says, “We’re pretty sure it’s a durable recovery as long as the economy doesn’t fall into recession.”