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Jump in housing starts points to recovery


tombgrt
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To follow Parsad's lead, here is some extra positive news functioning as counterbalance against all the negativity out there:

 

http://finance.yahoo.com/news/housing-starts-hit-1-5-133633152.html

 

It's a start.  :)

 

---

 

All that is good news. Our businesses related to home construction, however, continue to struggle.

Johns Manville, MiTek, Shaw and Acme Brick have maintained their competitive positions, but their profits are

far below the levels of a few years ago. Combined, these operations earned $362 million pre-tax in 2010

compared to $1.3 billion in 2006, and their employment has fallen by about 9,400.

 

A housing recovery will probably begin within a year or so. In any event, it is certain to occur at some

point. Consequently: (1) At MiTek, we have made, or committed to, five bolt-on acquisitions during the past

eleven months; (2) At Acme, we just recently acquired the leading manufacturer of brick in Alabama for

$50 million; (3) Johns Manville is building a $55 million roofing membrane plant in Ohio, to be completed next

year; and (4) Shaw will spend $200 million in 2011 on plant and equipment, all of it situated in America. These

businesses entered the recession strong and will exit it stronger. At Berkshire, our time horizon is forever.

 

 

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Guest misterstockwell

It's still 65% single family homes---building one more house in this sea of supply is idiotic. Building another half a million this year is incredibly stupid.

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Jup, I know it was mostly multi-family construction and was waiting for someone to say so.  ;) Like you said Eric, it's just a shift in demand that needs to be filled.

 

I do think Buffett should care and takes notice as it has a substantial indirect impact on a lot of his holdings, not just the carpet businesses.

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I found this attachment deep in the bowels of ZH  ;D

 

Looks like some unseasonably warm weather may have had something to do with pulling some construction forward, but otherwise very slow, steady improvement. Evidence of a slow recovery unable to withstand an exogenous shock....

 

so now the ECRI forecast is "dependent" on an exogenous shock. A real hail mary!

 

 

hahaha precisely what I was implying. Was trying to avoid the R-word since discussing the possibility/likelihood we're headed into a recession is a big no-no on here. But since you brought it up....

 

http://www.businesscycle.com/news_events/news_details/3108

 

http://www.hussman.net/wmc/wmc111219.htm

 

http://www.telegraph.co.uk/finance/china-business/8957289/Chinas-epic-hangover-begins.html

 

 

Will be interesting to see how bank balance sheets/stock prices perform through a global recession. Perhaps that scenario is baked into current prices, but I'm not smart enough to figure out how a capital position wiped out by a mere 10% hit to the asset side can withstand that scenario.

 

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I found this attachment deep in the bowels of ZH  ;D

 

Looks like some unseasonably warm weather may have had something to do with pulling some construction forward, but otherwise very slow, steady improvement. Evidence of a slow recovery unable to withstand an exogenous shock....

 

Everyone should look at the charts on this Wells Fargo report before talking about "recovery".

 

And as always, be careful with seasonal adjustments --

 

"On a not seasonally adjusted basis, single-family starts totaled 32,300 units in November, which is slightly below their year-ago level. On a year-to-date basis, single-family starts are down 10.2 percent from last year and are on pace for their weakest year on record."

 

 

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I found this attachment deep in the bowels of ZH  ;D

 

Looks like some unseasonably warm weather may have had something to do with pulling some construction forward, but otherwise very slow, steady improvement. Evidence of a slow recovery unable to withstand an exogenous shock....

 

Everyone should look at the charts on this Wells Fargo report before talking about "recovery".

 

And as always, be careful with seasonal adjustments --

 

"On a not seasonally adjusted basis, single-family starts totaled 32,300 units in November, which is slightly below their year-ago level. On a year-to-date basis, single-family starts are down 10.2 percent from last year and are on pace for their weakest year on record."

 

 

Quoting from the Wells Fargo report:

We expect homebuilding to improve modestly in 2012, with most of the gains coming from apartment construction.

 

 

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"The return to a "normal" housing market, where supply and demand are in balance and prices are rising 2 percent to 3 percent a year, is still, unfortunately, years away."

 

So I guess despite a housing price bottom in 2012, there is no V-shape coming out of it. I'd be curious to hear how this would fit into WEB's housing recovery thesis. I think I last saw him say he thinks inventory is being worked through at a faster rate than the market currently is estimating.

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"The return to a "normal" housing market, where supply and demand are in balance and prices are rising 2 percent to 3 percent a year, is still, unfortunately, years away."

 

So I guess despite a housing price bottom in 2012, there is no V-shape coming out of it. I'd be curious to hear how this would fit into WEB's housing recovery thesis. I think I last saw him say he thinks inventory is being worked through at a faster rate than the market currently is estimating.

 

His thesis isn't that complicated.

 

1)  he says homebuilding recession is a bigger piece of the total unemployment than people realize

2)  by under-building we have nearly caught up with the amount that we over-built

3)  unemployment is distorting the picture, keeping household formations low.  See point #1

 

 

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Meanwhile it is a Golden Age for landlords...

 

http://online.wsj.com/article/SB10001424052970204058404577110732758851626.html?mod=googlenews_wsj

 

Much of November's increase came from the construction of apartments, town houses and other multifamily developments, evidence that rising demand for rental housing has encouraged developers to begin building again.

 

Starts of residential developments with two or more units saw a 25.3% increase, while starts of single-family homes, which make up about 65% of the housing market, rose 2.3%.

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The Calculated Risk blog has excellent analysis of housing supply in the US. Both Calculated Risk himself and economist Tom Lawler (Senior VP at Fannie Mae until Jan 2006) have several posts addressing the issue.

 

Calculated Risk's most recent estimate of vacant housing supply is about 1 million units: http://www.calculatedriskblog.com/2011/12/excess-vacant-housing-supply.html

 

Most of the discussion on the web about US housing vacancies and home ownership is based on data from the CPS/HVS survey. Here's Tom Lawler on why this survey likely has significant errors: http://www.calculatedriskblog.com/2011/05/lawler-census-2010-demographic-profile.html and http://www.calculatedriskblog.com/2011/05/lawler-census-2010-and-us-homeownership.html.

 

Lawler's fundamental argument is that the CPS/HVS survey numbers are off considerably from the decennial census numbers for both 2000 and 2010, indicating some sort of systematic error (although he doesn't know what this error is). For example, the homeownership rate according to the 2010 census is much lower than the rate according to the CPS/HVS survey -- 65.1% versus 67%.

 

Lawler's posts are long, but well worth the time in my opinion. Thanks largely to his work, I am fairly convinced that US housing oversupply is not as dire as many people think.

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What about >90 day delinquent and foreclosed homes--those are eventually "supply". That number is closer to 4 million.

 

Unless they are all going to crowd into a tent, then we are either going to see:

 

a)  4 million new single family home renters  (just rearranging the deck chairs isn't it?)

b)  4 million new apartments built  (lots of new jobs!)

c)  A mix of both  (some deck chairs shuffled, some new jobs too)

 

I'm guessing it's c.

 

 

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What about >90 day delinquent and foreclosed homes--those are eventually "supply". That number is closer to 4 million.

The delinquent and foreclosed homes that are currently vacant are already counted in the supply numbers. Those that are occupied have people living in them who will need to find another place to live after foreclosure. So it doesn't make sense to add these 4 million homes to the supply.

 

Perhaps your point is that so many homes going into foreclosure will increase the number of future vacant homes because people who get foreclosed on will have to double up or go stay with their parents etc. I think there is some truth to this, but unemployment is probably going to be a bigger factor determining the extent of this effect. Also, a different way of looking at this is to say that the household formation rate in the near future will be less than usual because of all the homes going into foreclosure. This means that the one million excess vacant homes might take longer to absorb. At normal household formation rates the excess supply should be absorbed in less than a year, but if household formation is slower, it might take two years instead. My guess is that excess supply will be absorbed by the end of next year barring a recession, but vacancy rates may dip below normal before housing construction really picks up.

 

 

 

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So let's get down to brass tacks shall we?

 

The numbers on housing completions per year (in thousands): 

 

2001 1,570.8

2002 1,648.4

2003 1,678.7

2004 1,841.9

2005 1,931.4

2006 1,979.4

2007 1,502.8

2008 1,119.7

2009 794.4

2010 651.7

 

source: http://www.census.gov/construction/nrc/pdf/compann.pdf

 

14,713 built across 10 years.

Then add in 600k estimated for 2011, and you have 15,313 built in past 11 years.

 

That's 1.39 million housing units completed per year.

 

How does anyone justify the claim that we have an oversupply because we built too many?  It looks to me like we merely have an unemployment problem (and Buffett thinks it's because of the unsustainable slump in homebuilding).

 

 

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Furthermore,

1.35m per yer average built over 11 years from 1990-2000

1.52m per yr average built over 11 years from 1979-1989

1.62m per yr average built over 11 years from 1968-1978

 

I'd say 1.39m for the past 11 years is on the low end of the past 44 year experience.

 

 

 

 

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But I suppose comparing decade to decade is problematic without taking into consideration the shifts in new household formation.

 

In the twelve months ended March, 2010 only 357,000 new households were formed (net number).  This was a record low for the history of the U.S. Census data base, which goes back to 1968.  The number is also nearly a million short of the ten-year average of 1.3 million net new households per year.  As a result of The Great Recession, by the end of March, 2010 there was a cummulative deficiency of 2.3 million net new households from the recession.  That implies a normal net new household formation rate without effects of The Great Recession would have been over 1.5 million per year.

 

http://econintersect.com/b2evolution/blog1.php/2011/05/04/increase-expected-in-u-s-new-household-formation

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