This via Bill Mcbride is why I say the catch has not set in, from NAHB:

The apartment sector is a bright spot in the overall housing market leading the industry’s path to recovery. However, the lack of credit to finance the development of new apartments is likely to cause a supply and demand imbalance, said panelists during a press conference held today at the National Association of Home Builders (NAHB) International Builders’ Show (IBS) in Orlando, Fla.

Multifamily housing demand will outpace current capacity to finance production and could put the brakes on the recovering industry. “While we are forecasting construction of 208,000 multifamily residences in 2012, that figure is well below the 350,000 units a year that is needed to maintain balance in the market,” said Sharon Dworkin Bell, NAHB senior vice president for multifamily and 50+ housing

Point 1: Importantly for those who like to think in terms of multiple equilbria, I would not that Sharon Dworkin Bell and her panelists are simply taking the world as it is. They cannot get credit and so they are saying: because we cannot get credit we will not build as many homes as we would be profit maximizing to do.

They are not, however, suggesting that we have entered into some new regime where it doesn’t make sense to build apartments. No, the bank simply will not fork over the cash.

Point 2: Nonetheless, they still see a rise on the back of pure per-capita-depreciation. Last year there were only 165K stats and this year they are expecting a 30% increase, though they are noting that livable homes per capita will continue to fall.

Point 3: What Sharon Dworkin Bell and the NAHD cannot see is the dynamics on the entire system.

As the natural rate of interest rises, they will find that banks become more willing to lend. This will allow them to build more homes. This entire will increase banks willingness to lend. This will allow them to build still more homes.

This is why you can have a situation where the builders themselves are surprised at the total number of homes which they start the during the year.

This is what the Smith/Yglesias Thesis posits as “The Kick” and it seems fairly close at hand barring obvious shocks: euro crisis, US banking crisis, large tax increases, Fed raising rates prematurely, oil price dynamics that are contractionary and strongly so.


Also via Bill McBride from the NAHB

February 9, 2012 – The residential remodeling market will continue to experience measured growth in 2012 after the Remodeling Market Index (RMI) rose to a five year-high at the end of 2011, according to panelists at a press conference held today at the National Association of Home Builders (NAHB) International Builders’ Show (IBS) in Orlando, Fla. While the overall housing market conditions continue to create a drag on remodeling growth, the growing trend among home owners to remain in their homes and remodel has provided a boost to the remodeling market.

“Remodelers are poised to continue our industry’s gradual improvement as we start 2012,” said 2012 NAHB Remodelers Chairman George “Geep” Moore, Jr., CGR, CAPS, GMR, a remodeler from Elm Grove, La. “It is our hope that home owners who want to remodel this year face less constrictions from lack of financing, fear of lost equity and challenging appraisals.”

The strongest sectors of the remodeling market at present are aging-in-place retrofits, energy efficiency upgrades, and reinvesting in distressed properties.  The leading indicator for remodeling points to continued market volatility, but stronger growth in the second half of 2012.

Spending on improvements to owner-occupied housing is nearly equal to that of new residential construction,” said Paul Emrath, NAHB’s vice president for survey and housing policy research. “NAHB predicts that residential remodeling will rise 8.9 percent in 2012.”

I gave a talk at GMU on the Great Recession where I made the point that the key thing about structures is that they are stuck to the ground.

This means that when you want to build a structure you have to go tell a bank manger that you wish to take a bunch of his money and nail it to ground. When the value of the ground is collapsing the bank manager will understandably look at you askance.

However, the conversation is a bit easier when it comes to retrofitting a structure already attached to the ground. Thus we see this divergence where new construction hits record lows while remodeling hits record highs.

This is further evidence that the marginal product of residential capital is actually soaring but that credit and collateral constraints prevent builders from acting on it.