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How Does 2009 Compare to Previous Housing Recoveries?

After U.S. single-family housing starts hit a record low annual rate of 342,000 in January, they've taken steps forward in five out of the six months subsequent. They're up 34 percent from the bottom (assuming January qualifies as such), so the pace of the recovery is in the middle of the pack of recent recessions. But the level of starts is still very low, and it's hard to imagine a scenario where the housing sector can provide its usual push to the overall economy.

The analysis that follows didn't spring from my head; the heavy lifting has been done for me by Calculated Risk, the name of both a blog and a hard-working blogger, who chronicles the zillions of statistical releases of financial data from the government and trade associations. (I borrowed his headline too.)

CR made a straightforward report on housing starts August 18th, and followed 90 minutes later with an cross-sectional analysis of housing start recoveries after the recessions of 1970, 1975, 1981, 1991, and today.

He points out:

Starts fell to record lows in the current housing bust (adjusted for changes in population, or number of households, would make the current bust even worse)...
Here's his graph comparing recoveries. The current anemic recovery is represented by the red line at the bottom.


And he analyzes:

[H]ousing starts usually double in the two years following the bottom. Starts increased 80 percent over two years in the recovery following the Jan 1991 bottom, and 136 percent in the recovery following the Jan 1970 bottom.

If starts doubled over the two years following the Jan 2009 bottom, single-family starts would recover to 715 thousand by Jan 2011. And looking at the first graph some people might think single-family starts might recover to a 1.1 million rate within 2 years.

CR thinks such a recovery is unlikely, citing the high levels of unsold homes - just under nine months' worth at the current rate of sales, according to the National Association of Home Builders.

Moreover, to qualify for tax credits, home sales have to be closed in November, which may be accelerating the start activity this year. What an awful situation.