Lowest Housing Starts Since World War II

At the projected 551,000 rate for new housing unit construction this year, it would be the lowest since at least 1945. Data in prior years are a bit sketchy, other than knowing that there was nearly zero construction during the Depression years of the 1930s.

So with population at 312 million in the U.S. today and rising by 3 million each year, housing starts are on track to be lower than when the U.S. population was only half its current size, more than 50 years ago.

The low construction also means that there will be a faster return to a healthier market. Inventory is thinning out. Home prices have shown stabilizing signs.   Low new housing starts will mean even further dents in overall inventory and a better chance for a home price recovery ahead. This time last year, many economists were calling for another major downturn in home prices as the homebuyer tax credit went away. The fact is that home prices will be down only modestly in the low single-digits this year. The very low home construction has helped minimize the home price decline potential.

Now, with housing starts so low, some investors are buying properties before a possible housing shortage develops in the upcoming years. Investors are also buying as a hedge against inflation (since gold, another hedge against inflation, appears very pricey). Both homebuilders and the banks – the providers of construction loans – will soon realize the housing market recovery potential. Therefore, housing starts will rise from 2012 on, to about 600,000 in 2012 and 800,000 in 2013. That pace will still be well below the historical average of 1.5 million housing starts that would be needed each year.