Housing Economics 101

Since I am somewhat of a numbers junkie, I wanted to review a few data points I find interesting.

1) A house value is not related to national trends, they are regional, and I would further argue that they are really neighborhood driven. This is the recent Case-Schiller data: Point: ignore home value numbers if they aren’t, at the very least, regional.

2) Supply is also regional. A house in Dallas cannot be substituted for a house in Phoenix. While national trends show a huge overhang of homes (new and existing), Dallas is pretty close to normal trends. Point: see #1 above, supply statistics, like prices, are regional. Ignore them if they do not apply to where you are looking to buy.

3) The local market will bottom when supply and demand reach equilibrium. Starts, both nationally and locally, have been falling for two years.In fact, national starts are at historic lows

Home builders started 18.9 percent fewer homes in November, down to an annualized rate of just 625,000 units from October’s rate of 771,000, the lowest level since record-keeping began in 1959. On a year-over-year basis, housing starts are down 47 percent. Link

Point: from an economic point of view, things are happening as they should. Starts are down, starts are less than closings, inventory is being whittled down.

4) Going forward, the key is to look for a flattening or increases in regional starts. For us, this is the million dollar question – when will this occur? Guys smarter than I predict the middle of 2009 (on a regional basis). Probably not a bad bet. All time lows in the fed fund rate, stock market turmoil seems to be lessening, new presidency and tons of stimulus packages – all of which take time to hit main street. I won’t hold my breath, but it’s not inconceivable to think that in mid-2009 we will see signs of life again.

5) There’s a chance, if you stick to the numbers, that we might even run into a housing shortage in 2010. Multiple years of historically low starts, coupled with increasing local population, and a long lead time for to build houses all mean that demand will likely outstrip supply again.

November Housing Starts: All-Time Low
Energy Prices, Housing Starts Plunge
U.S. Census – November Residential Construction

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