I don’t expect a rebound in home prices for three years.
Similarly, I don’t expect a boost in home construction for at least three years.
There are just so many unsold homes on the market, so many homes going into foreclosure each month, so many foreclosed homes waiting to come on to the market, that there is far more downward pressure on home prices than upward pressure.
Housing traditionally accounts for 15-20% of economic growth, but since 2007, it has only accounted for 4%. Housing remains a significant drag on economic growth.
The construction of new homes have a dramatic effect on the economy, boosting employment. Each new home adds on average three jobs to the economy and about $90,000 in new tax revenue.
With so many homes available for purchase at declining prices, it makes less sense to build new homes.
Pushing interest rates lower and expecting to wring new demand for housing out of it reminds me of the saying about squeezing blood out of a rock.
The Commerce Department said builders began work on a seasonally adjusted 604,000 homes last month, a 1.5 percent decrease from June. That’s half the 1.2 million homes per year that economists say must be built to sustain a healthy housing market.
Single-family homes, which represent 70 percent of home construction, fell 5 percent. Apartment building rose more than 6 percent.
…The number of homes under construction in July was the fewest in 40 years. Just 413,000 homes are under construction, after accounting for seasonal factors. A decade ago, roughly 1.6 million homes were built.
Building permits, a gauge of future construction, declined 3.2 percent in July. Jill Brown, vice president of economics at Credit Suisse, said that decline suggests “very little forward momentum.”