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When the recovery in home building comes, it could be massive

Posted by: Prashant Gopal on February 19, 2009

With home building grinding to a halt, some analysts are beginning to discuss the size of the potential recovery.

Analysts at Wheaton-Ill.-based First Trust Advisors are predicting that the rate of new housing starts will bottom out this quarter, though they aren’t ready to say when the country will be in full-out recovery mode.

But when builders put their construction crews back to work (whenever that happens), the pace of starts could triple from last month’s anemic pace of about 466,000 to at least 1.5 million, said First Trust Advisors senior economist Robert Stein, who wrote a Feb. 16 report on housing starts with chief economist Brian Wesbury.

“The production level for houses … has gone to unsustainably low levels,” Stein told me today. “Once the excess inventory is worked off, we are poised for a major increase in residential building.”

That will give a much-needed boost to the economy. Stein says the pace of construction has to increase because the U.S. population is growing and old houses need to be replaced. At the current pace of housing starts, it would take 279 years to replace the country’s 130 million houses, he said. The typical replacement rate for a house is about 70 years.

Reader Comments


February 20, 2009 1:58 AM

This housing crisis is affecting EVERYTHING! even my Jewelry Store is feeling the crunch. I keep my costs down, but still, people are scared and simply dont want to purchase anything in the luxury category. Its really Luxury Vs Shelter.


February 20, 2009 10:20 AM

I can't agree with this. There are way too many housing units in this country. Due to tightening lending standards, there will not be another wave of speculative lending.

There will be some increases in growing metro areas, but for a majority of the country, we'll see very low level of organic building activity for the next 5-10 years.


February 25, 2009 11:00 AM


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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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