In reaction to the sharp increase in housing starts in 2012 Bill McBride says:
And the growth in housing starts should continue over the next few years. Even with the significant increase this year, starts in 2012 will still be the 4th lowest year since the Census Bureau started tracking starts in 1959 (the three lowest years were 2009 through 2011).
My estimate is the US will probably add around 12 million households this decade, and if there was no excess supply, total housing starts would be 1.2 million per year, plus demolitions, plus 2nd home purchases. So housing starts could come close to doubling the 2012 level over the next several years – and that is one of the key reasons I think the US economy will continue to grow.
I honestly don’t get that. I can see that housing starts have increased relative to the very low number of starts in 2011. Either Mr. McBride is saying that there are some other factors at work that he doesn’t talk about in his post or he’s claiming that the economy will continue to expand. According to the NBER, the official recordkeeper, we’ve had about 41 months of expansion. Based on past experience we should expect that expansion to slow and even reverse within the next couple of years.
Consider the graph above and the associated table. What I see is that what we’ve been experiencing over the last dozen years or so is a marked departure from the normal. During most of the period housing starts increased during expansions and declined during recessions. From about 1993 onwards (or, arguably, from about 2000 onwards), that pattern has been thwarted. To me it looks as though we’ve been overbuilding houses for quite a long time.
One data point doth not a trend make. 2013 may see more increases in housing starts or it may see a decline, as there was in 2011 relative to 2010. It’s just too early to tell but, given where we probably are in the business cycle, banking on a new housing boom sounds premature to me.