U.S. May Face Housing Shortage in 2011
Economist Says, Foreclosures Notwithstanding, Housing Inventory Isn't Keeping Up With Population Growth
and
Some Economists Predict Severe Housing Shortage
I often read that housing will not improve until employment improves. An interesting conundrum, since in past recessions, employment increased during housing recoveries. I don’t think that most people, even economists, think through the relationships involved in new home construction. So, which came first, the chicken or the egg? Once new home construction resumes, it should fuel new job creation as construction workers go back to work. How will this affect national homebuilders such as Beazer (BZH), Pulte (PHM) and Hovnanian (HOV)? What about the manufacturing jobs that are created for lumber, appliances and building material products such as roofing, doors and windows? Not to mention electrical and plumbing materials and fixtures. Taking things a step further, what about the technology that goes into new homes? Most people will buy new big screen TV’s, state of the art sound systems as well as computers and printers for their home offices. Many lumber and panel mills have been curtailed, shut down and even dismantled or turned into Biomass Power Plants. An increase in new home construction will provide a boost to the remaining producers, such as Weyerhaeuser (WY), Lousiana Pacific (LPX), and CanFor (CFP). What about the “leg up” for the automotive sector? Construction workers will need new trucks. The American construction workers I see everyday drive Ford (F), GM, and Dodge trucks. Perhaps the taxpayers would be the beneficiaries of a boost in the automotive/truck sector, by virtue of government stock ownership. How about the heavy equipment that is required? The few remaining building material suppliers would have to hire new workers and buy new equipment, since over 80% have closed, and the remaining ones have scaled down. Caterpillar (CAT) would obviously have to add workers to produce the heavy equipment that would be required. What about all of the real estate agents that have been sidelined during the housing slump? Everyone tends to spend freely when their commissions are good. And regional and community banks, of course, would be huge beneficiaries from the loan demand, once they decide that it is safe to lend again. Even the giants Freddie Mac and Fannie May would return to viability (maybe I should buy some FNMA, one share costs less than a postage stamp). How about foreclosures? Less homes will be foreclosed as employment increases, and the inventory of foreclosures should decrease proportionately.
As new home construction increases, employment in all of these areas will have to increase. As employment increases, there will be increased demand for housing as new household creation resumes its pre-2007 “normal” rate of 850,000. Consumer spending and consumer confidence will increase as a result of job creation. Here at Cofer/Adams Building Center, Inc., it is difficult to take an objective view, since I am immersed in the lumber and building material industry every day. However, in my opinion, it is not a question of “if”, but one of “when” will the increase in new household formation and new home construction reach the “tipping point”, and begin to increase at an increasing rate. It really is an intricate, far reaching puzzle, but there is no question that it will become a self-fueling growth engine again, once the “tipping point” is reached. I guess the most important question is: "How do we reach that tipping point?"
-Reid
