Monday, March 25, 2013

The Housing Recovery is Here


The chart above shows how there is an inverse relationship between the building of one unit structures (single family homes) and the unemployment rate (inverted on the chart).

The message is clear: We will finally see a real recovery when the housing market picks up.

No more false green shoots. Luckily, looking at that chart seems that that the real recovery will be arriving sooner rather than later.

This recession hit all sectors pretty hard, but it hit construction harder than most. An oversupply of homes were built during the boom years and it has taken a few years for that excess inventory to naturally be absorbed by the market. That has now happened. For the past few months, there has beenless than the industry-standard 6 months of housing supply left on the market. The remaining supply (Arizona desert) may not geographically match where the demand is (Pacific Northwest and Texas), therefore new construction  has to happen. In such a labor intensive industry as construction, the housing boom is bringing down the unemployment rate.

If you look closely enough around the 2009-2010 quarters, you can see a false green economic shoot that occurred because of a poorly-designed stimulus program. The government  offered an additional $7,500 to homebuyers, on top of all the other incentives, during the peak of the recession in order to sop up excess inventory faster. Economists argued that few, if any, people would decide to purchase a home because of this incentive. Rather, people would move up the date of purchase that they were planning on making anyways in order to take advantage of this government handout. That's why you see a small construction bubble during these years, only for it to be deflated once more.

The recovery looks like it is here to stay this time because the underlying fundamentals of the market, instead of an artificial government program.

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