Housing Starts: Another Reason For A Delayed Recovery

The home-building industry gave us another shabby data point on new construction and customer interest: the National Association of Home Builders reported that its monthly Housing Market Index dropped to 15, after making a brave but vain attempt for several months to cross the 20 mark. No surprises, really; we know housing is in the tank due to boom-driven overbuilding and overbuying, thus a supply issues -- too many unsold houses. Along comes the Pew Research Center to tell us about a change on the demand side: between 2007 and 2008, 2.6 million people moved in with family, depressing the need for housing and making the effective inventory that much larger, and deferring a housing recovery.

Click on the graphic for a more clear, and more clearly bleak, image
Since the late 1940s, construction of new homes in the U.S. has averaged about 1.4 million to 1.5 million, following the demand for new homes, which in turn has grown consistently with the population (or more accurately the number of households).

Home building is cyclical, of course: they last a long time, and cost a lot, so people can put up with the old place for a few years if times are tough. But as we already know, easy money in the past 20 years spurred building beyond what was needed, about 1.7 million new units from 2000 to 2007. As a result, February 2010's housing starts were just 575,000, seasonally adjusted. Of course, there may be some blizzard effect in there, but even so, it's a miserable number:

Source: St Louis Federal Reserve

Going back even further, only a few months in the late 1940s did housing starts fall under a rate of a million a year.

As to the timing of a return to a normal rate of housing starts, or even just an upturn, most forecasters fix the date and extent of recovery based on historical patterns of demand. (There's about 9 months of unsold house on hand at the moment; normally I would link you to the statistic, but none of the trade groups seem to be reporting it any longer.)

Some observers, however, are cautioning about changes in the nature of U.S. home demand. (For you microeconomics fans, a change in demand -- how and why people want things -- rather than the change in the quantity demanded.) That could explain why the drops in home prices we have borne for years have not cleared the inventory.

The multi-generational American family household is staging a comeback...

As of 2008, a record 49 million Americans, or 16.1% of the total U.S. population, lived in a family household that contained at least two adult generations or a grandparent and at least one other generation... says the Pew Social Center, in its fresh report "The Return of the Multi-Generational Family Household."

...[A]t a time of high unemployment and a rising foreclosures, the number of households in which multiple generations of the same family double up under the same roof has spiked significantly. [From 2000 to 2009, Pew says, the number of people in multi-generational living rose to 49 million from 42 million.] Our report finds that from 2007 to 2008, the number of Americans living in a multi-generational family household grew by 2.6 million.

Most of the Pew reports concerns social variables, such as how people can be healthier and happier living with their families than alone (an arguable point, I realize), rather than housing. But if our Great Recession has the staying power it has shown so far, these changes could last a while, and push out a housing recovery several more years. As well as the return to employment of the over two million people that have lost their jobs in the construction industry.

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