Why?
Housing starts predict unemployment by 6-18 months quite well. Housing starts will tank, and sure enough 6-18 months later unemployment starts to tank. Housing market bottoms out and starts to recover, unemployment sure enough peaks 6-18 months later.
But what if housing starts stay stubbornly low?
Notice in the chart housing starts usually recover immediately, bottoming out and immediately recovering resulting in a very V shape recovery. However, (despite all the stimulus money and low interest rates and first time home buyer credits) housing starts remain stubbornly low this time around, matter of fact, staying quite low and flat for pushing three years;
So, my fine fellow economists, what do you suppose this means for unemployment?
I know the answer is simple, but keep in mind those brilliant economic geniuses at the Fed and Obama's economic team can't figure this out. Which makes you essentially all tippy top super official professional economists!
11 comments:
Double Dip. Well, if you consider that officially we are "out of the recession"... Looks more like we Flatlined on the operating table...
Thanks Doctor Reid, Pelosi, and Obama.
The chart makes perfect sense. In past post war recessions, the housing market was not a large factor in the downturn. The housing market turned down because of a recession. In today`s case, the implosion of the mortgage and housing market is what started the recession (or at least was a major component). There are still a lot of bad mortgages that have not been written off. There is also a large surplus of empty houses on the market. This will have to be cleared out before any new construction takes place.
When this is all said done, perhaps people will realize housing prices do not always go up. Hmmm, let me think, maybe all those home equity loans were a bad idea as well. The mortgage interest tax deduction is another stupid idea, that may have to be changed. This recession correction process is going to take some time, before things get better.
But what does this mean for the "housing bubble" theory? There doesn't appear to be the quick runup in house-building that can be seen in the earlier crashes. Are there really too many houses on the market?
Or does the problem lie elsewhere...
It just means that we will have a 10-year no-growth period just like Japan did after the end of its bubble.
Then the answer is obvious. We need to tear down a bunch of houses so we can start new ones. President Obama, tear down these walls!
So how does the oversupply of existing housing tie-in?
Also, when interests rates go up what little home building activity is left will disappear.
Unemployment remains high, which is pretty consistent with an article I read discussing the shadow inventory on the housing market, namely all the houses that are behind on the payments but not foreclosed on, namely because the banks have too big an inventory to handle already.
I'm just waiting for people to come to the realization that no matter what people do to try to "fix" the situation, it'll be a long recession because it was caused by systemic effing-up, and it's going to take a while to correct the systemic errors, and that it'll be a long, long, time (if ever) before things get to where they were before the bubble burst.
For every 1.1 jobs there is demand for 1 housing unit. (approx national statistic - varies on the job created for the type of housing unit.).
It would be interested to comapre the unempolyment rate against this chart and also the population growth.
I suspect in will fall closer in line with employment figures. That should show us how large the "overbuilding" really was due to speculation vs. real demand.
Just where do all these people live after losing their homes to foreclosure? Under bridges and/or in sewer pipes?
There's another factor in play: the retirement of the baby boomers.
Here's a usenet post from 1997 outlining how the demographic factors play out.
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