Background
So, what is a ‘housing start’? According to the National Association of Home Builders (NAHB), “a start is defined as excavation (ground breaking) for the footings or foundation of a residential structure.” Housing Starts is often considered a leading indicator for the beginning or ending of a business cycle.
First, let’s look at what has happened over the past three and 3 ½ years. Starting from their recent peak in September 2005 with 2,263 housing starts, a consistent decline occurred. A review of industry statistics demonstrates the historic and dramatic nature of this decline.
Total housing starts were down 80% from 2.273 million in 2006 to 454,000 as of April 2009. Single-family starts were down 80.4% from 1.823 million in 2006 to 357,000 as of February 2009. Multifamily starts were down 80% from 450,000 in 2006 to 90,000 in April 2009. New home sales were down 76.3% from 1.389 million in 2005 to 329,000 in January 2009. 1.04 million jobs have been lost in the home building sector since February 2006 (30.2%).
Current State
In April 2009, we reached the lowest levels since records were first kept in 1959. Now, after 3 months of an upward trend in housing starts, it is agreed that we have finally seen the bottom in the housing construction market. This is good news for housing in general, since it means that the inventory of excess homes has been cut substantially, and will likely fall further.
Such great news needs to be put into perspective. First, the upward trend is not climbing as fast it fell. Secondly, most of the new starts are for smaller homes for first time buyers, which don’t have the same profit margins as the 500K-1000K market. Lastly, the tax credit for first time home buyers is due to expire in November and currently has not been extended by Congress.
Recovery
The way we see it here at Volvo Construction Equipment N.A., is that the recovery will be uneven with some of the most troubled markets declining through 2009, which include Florida and California, as well as Las Vegas and Phoenix, AZ.
Markets in the Northeast and South, with the notable exception of Florida, will recover ahead of markets in the Midwest. The industrial states have greater risk of continued weakness than the farm belt. Lastly, variation among the states is expected to be large.
Nationally, “the increase in affordability — along with the $8,000 federal tax credit for home buyers — is stimulating demand, particularly among young, first-time buyers, says NAHB Chairman Joe Robson.
Forecast
Many variables will affect the future of the housing industry. Some of these include access to credit for builders and homebuyers, ability of the Fed to restore stability and confidence in the market, and the continued support of the industry by the US government.
As you can see from the graph, we expect a modest recovery over the next several months. For 2010, we should expect to see only a 20% increase in housing starts. Most of this recovery is in single-family homes, since multi-family units are expected to decline slightly in 2010. We expect a more robust recovery in 2011, with housing starts increasing around 30% over 2010 figures.
With all of the uncertainty, you can be sure that Volvo will continue to offer the same quality that is present in every machine with routine maintenance. Please
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