Is the Plunge in Housing Starts a Bad Economic Sign?

Maybe not. The homebuilding industry has been a shadow of its former self since the recession.

If you’re looking for evidence of economic weakness, recent numbers for housing starts are troubling. Residential starts fell 12.3% in June, to the slowest rate since last year’s monster hurricanes, according to the US Census Bureau. But maybe we shouldn’t be too worried.

Why? The homebuilding industry has been askew ever since the Great Recession. The crash wiped out a lot of builders, and they haven’t come back.

Some history: After the financial crisis, home construction began trending upward from the sub-basement, then stalled out this year, and last month marked the biggest decline since November 2016. The actual June results missed projections by the largest amount in more than 11 years, said Paul Hickey, co-founder of Bespoke Investment Group.

As a result, homebuilder stocks are ebbing. Over the past six months, they have slid almost 11%.

The state of housing has long been a harbinger of how the economy will fare in the future. That sure was true with the 2008 housing crash.

Nevertheless, there are a number of positive economic signals these days, such as the recent jobs report, to bolster optimism.

Plus, it’s not a lack of consumer confidence or bank accounts that are holding back housing starts. Higher mortgage interest rates and rising home prices are strong influences.

But the bigger problem likely is the relative lack of builders. In 2007, 98,067 homebuilders were working in the US. By 2012, that figure had fallen to 48,261. Hence, the supply of dwellings is lower. In 2017, 1.9 new homes were sold per 1,000 people in the US versus the 2.6 average over the past half-century.

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