A point I want to keep emphasizing is that while the rapid increase in housing construction during the 2000s was not unprecedented, the collapse in home construction is.
This is just raw number of new units coming online. Its not adjusted for anything. So there are a lot of factors: population growth, age distribution, second-home ownership, apartments vs. single family, etc.
However, just in terms of units the peak of the boom was not way off. If there was way too much construction it has to be because the fundamentals were way different. This might well be, but understand that now the “this time is different” argument is being pushed by those who say there was a dramatic overinvestment in terms of the number of units.
Now, that’s not to say the units themselves weren’t too nice or that people were doing too much remodeling. Here is Private Fixed Residential Investment as a percent of GDP.
Though the 2000s weren’t as big as the post war boom they did out pace everything since the 1960s. Still the crash is far more unprecedented than the peak.
Another way of looking at this from a historical flow perspective is looking at how many new housing units were started each month versus how many new Americans there were each month. Again, the mildness of the run-up compared to the crash is apparent.
Indeed, because its more natural to think of people per home rather than homes per person. The implications from this view of the data I think are more instructive.
Some people die each year and some homes are torn down or condemned each year. Unless those ratios are changing rapidly then a current levels the number of persons per home will converge towards more than double its long run average.
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Saturday ~ March 26th, 2011 at 8:52 pm
rhmurphy
Homeownership rates are still well above historical norms. We were way overexpanded, even if that doesn’t show up in the aggregates you are using. You do keep emphasizing your point, but I don’t see how it can adequately explain the behavior of ownership rates.
Look at it this way- perhaps the high point in the first graph in ~2006 was not unprecedented, but the integral from ~1990 to ~2006 was. The glut was something that took time to build up. The decision to stop building houses can happen nearly instantaneously.
Saturday ~ March 26th, 2011 at 9:53 pm
Lord
If considering unprecedented, doesn’t one have to compare with the Great Depression, since this is the worst since then?
Saturday ~ March 26th, 2011 at 10:49 pm
Lorenzo from Oz
The other interesting thing is the 1990s. Eyeballing the data, it looks like construction was below trend. Enough supply-constrained markets could set off a price surge. I bet if you ran these by particular States you would get some striking results. (Comparing Texas and California, say.)
Even in the 2000s, the rate of increase in construction is lower than in previous cycles. Pricing on the basis of expected capital gains sucks in credit (either private or publicly backed) which leads to bigger “bets” and excess construction (building where you can rather than where demand is highest) which leads to bursting bubbles as expectations of capital gains vanish. Lots of burnt/over-extended people kills demand. (Chain-purchasing, where equity in one house helps fund the next ugrade is largely killed off, for example.)
Then the Fed collapses NGDP and a specifically housing problem becomes part of a much bigger disaster.
Saturday ~ March 26th, 2011 at 11:06 pm
JazzBumpa
Lord – Sure. But most data sets don’t go back that far.
Karl — Delong makes a similar point in a different way here, on Pg 25.
http://delong.typepad.com/sdj/2011/03/seven-sects-of-macroeconomic-error.html
My paraphrase, with liberties: During the boom we built too many of the wrong houses in the wrong locations and price range. There is now a structural mismatch in the housing market, with a glut of unaffordable McMansions; while people are doubling up with relatives or whoever takes
them in.
Oversupply along with excess demand and no way to match them up – EVER. How does something like this get sorted out? IT will be very long and painful.
I see it as one more symptom of asset misallocation that ran rampant starting ca. 1980.
Here are the home ownership stats. Table 14 at the link.
http://www.census.gov/hhes/www/housing/hvs/historic/
Rates are down from 2007-8. I don’t know what historical norm implies. Without graphing the data, it’s tough to say for sure, but it looks like ownership slowly increased for decades, peaked around 2007, and has since declined.
When building resumes, it will be very interesting to see what form it takes.
Cheers!
JzB
Sunday ~ March 27th, 2011 at 6:37 am
marmico
Tom Lawler at Calculated Risk has performed an analysis of “excess” housing inventory based on Census data. Home builders are in a world of hurt for several more years..
Monday ~ March 28th, 2011 at 10:29 am
bjvl
What puzzles me is how you look at the decline of house-building like it’s a bad thing. The American predilection for sprawling outward from city center, absorbing viable farmland to create wasteful living and shopping areas and requiring the creation of expansive highway transportation to work areas is neither efficient nor viable in the long term.
If (and this is a deliberate qualifier) the reduction of home ownership alters commuting patterns and cityscapes, then it is an overall benefit.
Wednesday ~ April 6th, 2011 at 9:26 am
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