Housing units under construction stayed about the same in August—a combination of fewer single-family homes but more apartments. However, the construction rates for both are still above their pre-pandemic trends, as is the overall construction rate:
As housing prices rose, builders increased their construction rate. That makes sense. But with construction rates above trend for more than two years you'd think prices would be coming down. And they are! But not by much:
Rent is down 2% from its peak and home prices are down 4%. Both are up 20% from their pre-pandemic level.
Lag, lag, lag.
Lag times. It takes almost a year to build a house. And even these trends aren't getting us caught up with the massive amount of unmet demand. Please show the chart going back to 2005. If you look at that and have an understanding of what derivatives are (the area under a curve), you can see just how far below trend the actual amount of housing supply is.
That's one reason why prices are going up.
As for rents, landlords (especially big-corporate, market-setting landlords) did the same thing all the other big corporations did in 2021 and 2022: they decided to use "inflation" as an excuse to jack up prices as much as they thought the market could bear, just to see if they could. And particularly in housing, which is a NEED and not a voluntary purchase, they absolutely could jack up rates as high as they thought they could get away with. Before the pandemic, they didn't realize that they could get away with it and there was a groupthink going on. Now the groupthink is running in the opposite direction, and given how short on housing the country is as a whole, it's going to be a while before they run into any kind of trouble with renting out units at whatever price they want to ask.
And with rents going up, since housing is a replacement good, it also puts upward pressure on home buying prices because some people will decide the rent is too high and they may as well just buy (rising rents decrease the breakeven time).
And with home buying prices going up, landlords can keep raising rents to match...
It's a vicious cycle. Unless you own a bunch of properties. We need to destroy the concept of housing as an investment, but it'll never happen because regularly-affluent (white) folks' wealth is tied to the value of their home (because it was their only way to invest and create significant wealth) - so really, we're just well and truly capital-F Fucked.
Just because I'm that guy. The area under the curve is the integral. The derivative of the curve is the slope (direction) of the line.
Housing starts, also supposedly from the Census, look different:
https://fred.stlouisfed.org/series/HOUST
They fell considerably when the Fed raised federal funds. Starts should be more predictive.
I don't see offhand how the starts would integrate to get Kevin's houses under construction, or how construction could be above trend if the starts measure is correct. Starts per capita (normalize, normalize) are still low historically, despite the long climb from the 2009 low. I would not look for prices to be alleviated by construction anytime soon, although demand has obviously decreased.
Yep, you've got it. If you assume the long term average (or the desired average) is somewhere around 1.6M units per month, and then you look at the "housing bubble" that occurred 2000-2005 (it wasn't really a housing bubble so much as a financial bubble...)... the area between that "bubble" spike and the 1600-thousand units line is what was "overbuilt" - if it was overbuilt at all.
The area below the 1600-thousand units line and above the curve since then is the amount we're short of that trend. That's how much we're underbuilt by in just the last 15 years - and we didn't have enough housing 15 years ago, either. We're even further behind the curve than we were, and that doesn't even account for population growth.
We also have places where housing is being build for AirB&B renting....
Also, all housing issues are local, and supply depends on target demographic--how much of the new housing falls in the "affordable housing" category?
I continue to be confused by your anecdata.
Housing completions are the only thing that matters and they look very different than the graph Kevin used.
https://fred.stlouisfed.org/series/COMPUTSA
https://fred.stlouisfed.org/graph/fredgraph.png?g=192MF
Even without a trendline drawn in, you can see completions fall well below trend around (before?) the pandemic and never recover.
Kevins graph shows a buildup in units under construction, but obviously there is no reason to expect a huge backlog in construction following the pandemic to lower housing prices.
The huge dropoff came after the Great Recession, not the pandemic. We basically stopped building new houses for about 5-6 years between 2008 and 2012 or so and have never caught up from that.
That's correct, but we are also currently below even the pre-pandemic trend.
Actually lag time isn’t the only problem. In my city most of the new housing is higher end and not even geared to middle income families let alone low income families. I have a family member who has been supervising a lot of affordable housing real estate development projects under the federal Opportunity Zones program that was started by the Trump administration and strongly supported by Cory Booker and Tim Scott. (Big surprise that one of Trump’s few substantive programs involved for real estate development.) Those developments have to be in designated low income areas to qualify for the tax incentives.
My relative has projects in DC, NYC (Queens), Atlanta, LA and Charlotte. He says the biggest problem is the time it takes to get permits done which is critical because the tax incentives are set to run out at the end of this year. However there is a push to extend it. There is a chance that may actually happen despite the insanity of the House since it is a Trump program favored by Tim Scott.
According to a report in Forbes the program is having a positive effect:
“…we see housing supply going up in these communities, housing values also rise but rents do not go up. The big signal of displacement pressure is seen in rents. “
https://www.forbes.com/sites/sorensonimpact/2023/05/22/exploring-opportunity-zones-exciting-new-data-on-the-positive-impact-of-ozs-across-the-nation/?sh=3c392fdb68f0
There are also reports of some companies gaming the system — SHOCK! — but it looks like it’s a program worth extending. Luckily my member he works for a family-owned company run by a progressive Democrat so they are serious about creating more affordable housing — while still making money of course.
Too bad most of the mainstream media is so obsessed with every Trump utterance that they can’t be bothered covering this important story. When they do report on housing costs they focus solely on the high costs, not improvements as Kevin does here or programs that are addressing the problem with at least some success. Sometimes it feels like they are deliberately working to induce learned helplessness in the American public so that we all just give up.