Wednesday, December 21, 2011

Even More Perspective on Housing

In response to my post Some Perspective on Housing, reader Tom Lindmark commented:

It would be interesting if you could take the time series back far enough to account for the rise of the Boomer generation. My guess is that if it were at all possible to normalize the data for their outsize impact we might see a far lower number of new home starts than what economists predict would occur in a "healthy market".
The chart below normalizes housing starts by the 16+ year old population (not perfect as it does not account for family size... the smaller the family size, the more housing units needed). What we see is that the most recent spike in housing units during this bubble was not as outsized as I would have thought (at least relative to the baby boom when household formations spiked), while the drop off remains severe. For reference, 0.5% roughly equates to 1.2 million homes (i.e. the number of homes economists referenced in a healthy market).

Source: Census / BLS


  1. Thanks for taking the time to pull this info together,Jake. It's perplexing isn't it?

    One knee jerk comment that occurs to me is that though we have had bigger booms, a couple of which seem to have resulted in somewhat the same order of magnitude busts as our current disaster, the recovery was always much quicker. Those busts didn't cave in the financial system and then the economy which might lend some credence to the thesis that the our problem wasn't with purchase money mortgages but rather with refinances and cash our refinances specifically.

    Why we aren't recovering in any significant manner is hard to figure. Maybe the economy is simply not as robust, relatively speaking, as the numbers indicate or perhaps the behavioral economists might have some insight.

  2. What this chart doesn't account for the price of homes and amount of leverage in the system. Previous spikes in sales didn't have the same increases in prices / were paid for with more equity (vs debt), so the slowdowns didn't put homeowners underwater. I believe that is what really differentiates this cycle.

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  4. This chart also doesn't account for square footage changes or destruction of existing homes.

    There is some natural level of home occupation per family unit - it would be interesting to make the X axis of this not % of population but (% of population - % population growth)

    The point is that family units will also swap out for other homes if certain conditions exist. What I wonder is ... Is what we are seeing in the recent data something close to the natural level of growth based on population and we simply are in a situation where no one is upgrading?

  5. The housing real estate business does not seem to have caught its breath’ It seem to be gasping for air. All the hupla years and years ago about being in the housing market was the best thing that could ever happen to you. I can can picture the young real estate agent’ the banker waiting for the buyer to sign on the doted line chuckling when someone suggested that real estate could maybe not be the greatest investment in the world. So over confident that you could smell it in the room.