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Thursday, December 23, 2010

Lawler: Overall Housing Stock Growth Likely to Slow Even Further in 2011

by Calculated Risk on 12/23/2010 02:54:00 PM

From economist Tom Lawler: Overall Housing Stock Growth Likely to Slow Even Further in 2011

Given recent and likely first half housing starts numbers, it seems highly likely that the growth in the US housing stock – which this year was the slowest in US history – will slow even further in 2011, even if housing starts begin to increase next year. Generally there is an average 7-8 month lag between SF housing starts are SF housing completions, and for MF housing starts the average lag is a little over a year. Given what housing starts have done, and given near-term indicators point to low levels of new housing production in the early part of next year, it seems highly likely that overall housing completions will be down in 2011.
Overall Housing ProductionThis graph shows the total overall housing production by year including single family, multi-family and manufactured housing - and Lawler's projection for 2011. Graph Credit: Tom Lawler
While final numbers are not yet in, overall [2010] housing completions plus manufactured housing placements probably will total around 696,000 or so. While there ARE no good timely data on how many homes were on net lost due to demolition, obsolescence, net conversions, etc., past data suggest that somewhere in the range of 300,000 to 325,000 homes were lost this way – implying growth in the housing stock in 2010 (EOY to EOY) of around 371,000 to 396,000. Next year I estimate that housing completions plus MH placements will total around 630,000, implying growth in the housing stock of around 300,000 to 330,000. If the labor market improves and household growth can just move back to 1.1 million a year or so, the combination of faster household growth and de minimus housing-stock growth would put a major dent in the excess supply of housing.

For some unknown reason, many housing “analysts” who talk about housing “supply” (shadow inventory, listings, etc.) do not even MENTION the outlook for the supply of the aggregate housing stock!!!!!!!
CR comments:
• Lawler makes an important point: the number of units added to the housing stock next year will be very low, and this means the excess supply will probably be significantly reduced. Of course this also depends on household formation - and that means jobs. (note: I usually estimate demolitions around 200,000 per year - Lawler is using 300,000+ per year.)

• When we discuss residential investment and real GDP growth in 2011, we are talking about growth from the levels at the end of 2010. Even though the overall housing production might be lower in 2011 (per Lawler's forecast), residential investment will probably make a positive contribution to GDP growth for the first time since 2005.

Comments on November Personal Income and Outlays Report
New Home Sales weak in November