Prior cycles all showed housing start troughs of at least 1 million units per year (1975, 1982, 1991), compared with about half that level in 2009, indicating an over-correction during this current housing cycle.
Housing starts per capita have hit the 7th lowest level on record, with the prior six lows occurring during World War I, World War II, and the Great Depression.
Now, one of the reasons we are seeing this correction in housing starts is the huge number of foreclosed properties coming onto the market. Foreclosure filings are running at about 300,000 per month right now, which equates to more than 3.5 million foreclosed properties per year. As long as foreclosures are at such a high level, it is probably unlikely that housing starts could rebound to a more historically normal level.
However, as the economy continues to improve and unemployment slowly drops, foreclosures will decline as well. At that point, there appears to be nothing in the demographic data that suggests that housing starts should not rebound to a level of at least 1.5 million annually over time, which is nearly three times greater than today’s annual run rate.
That is good news for everybody.
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