from The Other Side of the Coin Dept: A housing rebound? Yes, it's possible...
Posted by
xi (aka dmuck)
Sep 17 '10, 07:03
|
"All are worth noting, but one of the more striking bullish arguments come from an economist at Massachusetts Institute of Technology's Center for Real Estate. Bill Wheaton, who thinks the housing market is poised to make a strong comeback, calls home construction "a sleeping giant that is about to wake up."
Wheaton thinks much of the excess home inventory would either be sold, occupied or other otherwise absorbed by 2013. But from 2011 onward, demand should return to pre-recession levels. What's more, he says, the recovery of home construction could boost overall GDP at levels unseen during recoveries after previous recessions, with the exception of the massive building that happened right after World War II.
Not just a comeback, but a strong one
"Housing construction will not only rise, but it will stay high for a while, which didn't happen in previous recoveries," Wheaton says, commenting on a paper he wrote for the center in 2009. "It won't just be a one or two year blip."
So is Wheaton really onto something, especially at a time when so many people are jobless and housing units sit empty -- an unknown number of which could eventually fall to foreclosure?
The crux of Wheaton's argument lies in the rate of residential construction today. It's been historically low � so low that he believes demand is actually exceeding the level of building going on. This helps set the grooves for a relatively large comeback in residential investment.
Here's how Wheaton backs the imbalance of demand for housing units and residential construction.
He estimates that housing demand in 2009 was at about 1.1 million units � more than twice construction at the time. At this rate, the excess inventory will eventually be absorbed. "It's going to be a long time before construction picks up with demand," Wheaton says, adding that this should help housing prices. Foreclosures won't stop anytime soon, he says, but demand will return to a more normal level, clearing out the inventory and eventually sparking more new construction.
Housing construction could hugely drive America's economic growth over the next few years, Wheaton says. Residential investment as a share of GDP is relatively small, averaging about 3% to 4%. But given that there's so little building going on today, it's plausible housing construction could add an average of 0.7% to GDP growth per year over five years � a level far greater than what has been seen during recoveries of previous downturns.
Some might think Wheaton sounds way too bullish given what most experts are saying about America's housing rut. He could be wrong. He might only be half-right. But the bull's side is worth hearing as much as the bear's."
- hmmm (finance.fortune.cnn.com)
|