A couple of days ago in my City Talk column and in a followup post here — Where is the Savannah housing market headed in 2012? — I talked about the importance of housing starts in the economy.
Well we now have some of the latest national data. That graph and another from October come from Calculated Risk, and another posted below is taken from the Armstrong Atlantic State University Economic Monitor for the second quarter of 2011 (the third quarter one was recently released and showed no significant trend changes; it did not include a graph of building permits as the second quarter report did).
First, take a look at the role that housing starts/residential investment/building permits typically play in a recovery, by the contribution to GDP:
So residential investment typically is 4% or so of GDP, but note that the percentage generally goes up, sometimes quite strongly, as America has historically recovered from recessions. But there is simply NO CHANCE of that kind of bounce this time because of the housing bust, widespread unemployment, distressed sales, and high inventory. This is a key reason the recovery has been so weak and is likely the key reason it will remain so weak.
Take a look at how this plays out in terms of housing starts nationally and in terms of building permits locally:
We’ll need to see home building permits double to get back to a reasonable historical trend. I don’t expect we’ll see the level of construction from 2004 to 2007 for a long time. The overbuilding of those years (and that doesn’t even include about tens of thousands of units planned in that time frame) is a key reason we’re where we are today.