Little Graph, Big Picture

Today I am going to shamelessly steal data and give it my own spin. First, the data on housing starts from the National Association of Home Builders (NAHB). As shown in the graph below, the rate of housing starts since 1994 has been well above one million per year up until the Crash. After that it has dropped into the 400,000 to 600,000 per year range.





But what is normal? I took the liberty of inserting a ‘normal’ line at the one million starts level and then shadowing out the period prior to 1994. This then begins to show us something – the downturn in housing starts of the past few years has yet to offset the glut of housing built in the prior periods. In other words, don’t look for the upturn as early as 2012 as shown by the NAHB graph.

But what if the normal line is wrong? According to Harvard’s Joint Center for Housing Studies:

     While estimates vary widely, the Current Population Survey indicates that household    growth averaged about 500,000 per year in 2007-10. This is not only less than half the 1.2 million annual pace averaged in 2000-7, but also lower than that averaged in the 1990s when the smaller baby-bust generation entered the housing market.

So should the ‘normal’ line be 1.2 million?  Given historic rates of household formation AND the upward pressure from the Echo generation, this seems plausible.  And changing the line make the graph look like this:



Under this scenario, the upturn is upon us, even if multifamily housing absorbs some of the household formations.
The next question is what type of housing stock will serve the coming market. We’ll hold that for another day.