The big headline on the Wall Street Journal today was “Jobs Data Provide Hope” — noting better-than-expected jobs report (67,000 jobs added) and a few other minor (good) surprises. Then there was the news earlier this week form the S&P/Case-Shiller Home Price Index that home prices in the second quarter rose 4.4% and are up 3.6% for the year.
Writing in the Washington Post Neil Irwin makes a case for “things can only get better” (now that we’ve hit bottom) regarding the housing market:
This may seem an odd reason for optimism, given the horrendous data on July existing home sales and new home sales released last week. But those numbers have a silver lining. Basically, housing activity has shrunk so much that it would be hard for it to be much of a drain on future growth.
No one is expecting home-building activity to return to its pre-crisis levels for a very long time, and there’s a good chance that nationwide prices will fall further. But in July, builders started work on new housing units at only a 546,000 annual rate, far below the 1.3 million or so units of housing a year needed to keep up with population growth. That rate of construction is so low that the nation is rapidly working off its excess supply of housing built during the boom years. And remember that much of that excess supply is concentrated in places where the regional economy is also in terrible shape, such as parts of California and Florida. There’s little excess housing in much of the country.
With housing starts at such a low level, there’s just not much more room for it to hurt growth. When housing starts fell from a 2.3 million annual rate in early 2006 to the low of 477,000 in April 2009, it was a major drain on the economy. Even if construction levels were to decline a bit from their current 546,000 level, it would be mathematically impossible for residential construction activity to subtract from growth as much as the 2006 to 2009 collapse did.