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House Starts Balloon to “Well Below Average” from “Catastrophically Below Average”

The big news in housing today is that residential construction jumped above expectations in September. Housing starts rose 15% month-to-month, and permits for new construction increased 11%. Year over year, starts are over 30% up, while permits are nearly 45% up.

I think this shows as much as anything what a catastrophe housing has been for the economy over the last few years. Because despite these tremendous gains, housing starts are at an incredibly low ebb. While the above picture is slightly out of date because of the September gains, it’s no less revealing. 872,000 annual housing starts still puts us at depths only seen at the lowest point of previous housing crashes. And that’s six years after the beginning of the housing crisis.

This represents a failure of policy. We’ve been bouncing well below this bottom for four years. If there wasn’t pent-up demand for some new housing construction, it would be a great surprise. There’s been dramatic underbuilding relative to the population. The 1% still need bigger and better places to live, after all.

We should be happy that the year-over-year statistics are rising. We should be offended that it’s taken this long, and that we’re still at the bottom of the crater relative to all housing stumbles of the last 50 years. It’s really historically terrible, and that should play a role in understanding where we are, recency bias aside.

The other thing to say here is that, oddly enough, housing seems to be the only thing picking up in the economy, and it’s “picking up” in very idiosyncratic ways, determined by artificial supply constraints and years of underbuilding. Manufacturing has halted amid a global slowdown. Businesses, wary of the fiscal cliff and poor sales, have stopped investing. The consumer, perhaps feeling a wealth effect from this housing snap back, is still spending, but once they get a 2% net pay reduction from the expiration of the payroll tax cut, that could change quickly. The economy still looks jittery for 2013, especially if Congress bungles their response.

CommunityThe Bullpen

House Starts Balloon to “Well Below Average” from “Catastrophically Below Average”

The big news in housing today is that residential construction jumped above expectations in September. Housing starts rose 15% month-to-month, and permits for new construction increased 11%. Year over year, starts are over 30% up, while permits are nearly 45% up.

I think this shows as much as anything what a catastrophe housing has been for the economy over the last few years. Because despite these tremendous gains, housing starts are at an incredibly low ebb. While the above picture is slightly out of date because of the September gains, it’s no less revealing. 872,000 annual housing starts still puts us at depths only seen at the lowest point of previous housing crashes. And that’s six years after the beginning of the housing crisis.

This represents a failure of policy. We’ve been bouncing well below this bottom for four years. If there wasn’t pent-up demand for some new housing construction, it would be a great surprise. There’s been dramatic underbuilding relative to the population. The 1% still need bigger and better places to live, after all.

We should be happy that the year-over-year statistics are rising. We should be offended that it’s taken this long, and that we’re still at the bottom of the crater relative to all housing stumbles of the last 50 years. It’s really historically terrible, and that should play a role in understanding where we are, recency bias aside.

The other thing to say here is that, oddly enough, housing seems to be the only thing picking up in the economy, and it’s “picking up” in very idiosyncratic ways, determined by artificial supply constraints and years of underbuilding. Manufacturing has halted amid a global slowdown. Businesses, wary of the fiscal cliff and poor sales, have stopped investing. The consumer, perhaps feeling a wealth effect from this housing snap back, is still spending, but once they get a 2% net pay reduction from the expiration of the payroll tax cut, that could change quickly. The economy still looks jittery for 2013, especially if Congress bungles their response.

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David Dayen

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