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CONSTRUCTION KNOWLEDGE BLOG

November 10, 2011

Housing: Get Ready for a Quick Bust to Boom Transition
Filed under: Industry outlook — Tags: — nedpelger

With everyone writing about all the excess inventory in the housing market and how the recovery may be years away, check the facts. The housing boom up till 2008 wasn’t as spectacular as seems to be remembered and the current bust goes way beyond what logic dictates. The Economist chart below shows it clearly. With 1.5M new houses built every year as the average, look how the 2007 peak isn’t as outrageous the 2010 valley.

On the other hand, with home prices 30% below their peak in 2008, the confidence of potential home buyers has been battered. The overall pessimism about the housing market, though, seems over-stated.

Remember, the housing market often revs up fast. With all the pent up demand (several years of adult kids staying with parents and not moving out, folks not upgrading that can afford to, etc) the construction starts, sales and then pricing may escalate quickly.

Another sign in favor of a quick bust to boom transition involves the value of renting vs owning in the last few years. The Economist chart below indicates that the value proposition to purchase has improved significantly in the past year. Rents have gone up and mortgage rates and house prices have dropped. So buying a house looks wise today.

The theory I’m spouting above jives with what I’m seeing in the field. The local housing contractors have all taken off on a tear of new construction. As long as Europe doesn’t implode, a big if I’m afraid, it looks like the housing market may surprise the media and make a big move. Don’t let it surprise you. Take some time to think strategically about how you can use this info to your advantage.

Here’s a simple challenge. If you’re unsure about taking any action, just jot down in writing what you would consider doing if you had the gumption. Look at it in a few weeks or months and learn something. We get better about making strategic decisions by making (or practice making) them and tracking the results.