Wednesday, August 4, 2010

High expectations for a surge.................

A major California home builder is preparing for an expected
surge in new residential construction in 2014.  Story here.

My partner has recently been pondering the impact, over
the next few years, of "pent up demand" for new home
building.  I agree an increase in housing starts is in our future.

Standard Pacific Corp., the California home builder featured
in the story, sees a future with 850,000 annual housing starts.

According to the chart accompanying the article, between 1985
and 2006 we averaged nationally 809,045 housing starts per
year.  I suspect 809,045 is one of those statistical numbers that,
if you put too much credence in it, will lead you astray.  If you
look at the chart you will notice that new home construction in
the four years between 2003 and 2006 were significantly high
enough to skew the average upward.   All the evidence of the
past three years would indicate that, in 2005 and 2006 anyway,
the production builders were building for market that did not
really exist.

Maybe I just have the jitters, but I would be a lot more
comfortable if the big players in the residential construction
business were thinking about what a "sustainable" number of
annual new housing starts might be.  Based on recent history,
that number looks a lot lower than 850,000 to me.

In 2009 there were about 375,000 new housing starts.  HUD
and the Census Bureau believe we are on track for 450,000
single family housing starts in 2010.

I'm willing to bet a quarter that the number of single family
housing starts in 2014 will be closer to 750,000 than 850,000.

If I am wrong, I will cheerfully pay my debt.

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