The Housing Market 2012: Dirt Piles, Inventory Shortage and Nail Guns in the Evening Air

By Charles N. Waterhouse, Vice President and Senior Financial Advisor

On a recent evening’s bicycle ride, my route took me into a nearby subdivision whose development was stopped cold several years ago. The normal sight in recent years was several nicely built homes strewn among empty lots overgrown with grass and weeds. “For Sale” signs, forgotten and forlorn, were scattered about, reminding us of bygone days when growth and development created a flurry of activity and economic reward. I couldn’t help wondering a couple years ago, just how long it would be before someone started building there again.

Well, they have started building again…in spades. My recent ride turned up yet another pile of dirt, the remnants of a future basement. This latest excavation makes five housing starts in the last several months in this small subdivision alone. The “For Sale” signs have been cleaned up and straightened and we can hear the “thunk, thunk, thunk” of nail guns in the evening air. That doesn’t mean that our problems are over or the economy has rebounded, but it is a good indicator that the housing market is starting to be a positive contributor again.

We can see improvement in the numbers, too. Housing starts in May 2012 were 708,000, down slightly from a revised 744,000 in April 2012. These numbers are only about half of the long term average, however they’re greatly improved from the 553,000 in May of 2011, and the recent low of 477,000 in April 2009. (A start is defined as excavation or ground breaking for the footings or foundation of a residential structure.) Building permits and housing starts are both leading indicators of economic trends. Not only does the construction industry benefit and employ more people, it has an effect on related industries as well. People building new houses often get mortgages, buy furniture, landscape and buy new appliances, all which have positive impacts on economic growth.

Anecdotal evidence has also started to surface recently about housing inventory beginning to disappear. This supply and demand swing will have a positive influence on home values. We’ve seen in recent years a real buyers’ market, as inventories were so vast that home values and prices were crashing through the floor. But lately we’ve noticed a real bifurcation of the market, as foreclosed properties are still available in quantity, but are generally in bad shape. Other existing homes that are in move in condition are few and far between and therefore moving at a good pace.

It’s been a long time since we’ve been able to talk constructively about the housing market, but a positive trend is building. If building permits and housing starts continue trending upward, it will provide a greater foundation for economic growth. And if you’ve been wondering about building your dream home, maybe it’s time to meet with a financial advisor in United’s Wealth Management Group. We can help you get there. I look forward to seeing more dirt piles on the evening rides.