There are probably quite a few of you reading this article who do not remember the old“Memorex” commercials when “cassette tapes” were THE recording technology of the day.
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It was yesterday’s release of the housing starts data that reminded me of that slogan –“Is it live, or is it Memorex?”
In July of 2013, I asked the question of whether housing was really recovering or not? There has been much hoped placed on the “housing recovery story” over the last few years as it relates to the economy. As each year passes, the hopes of a stronger housing driven economic recovery has failed to emerge. Furthermore, as with many of the economic reports released as of late, there is a widening divergence between the statistical headlines and the underlying economic reality.
This is not a trivial matter as real estate is the bedrock on which the economic foundation is built. As much as home ownership is a symbol of achievement of the“American Dream,” it is also a large multiplier effect throughout the economy as a whole.
While residential investment represents a small portion of gross domestic product (GDP), housing is perhaps one of the most cyclical sectors of the economy and tends to lead economic swings by months to years. As such, understanding what is occurring in the housing sector provides valuable insight into future economic trends.
At The Margin
The problem with most of the analysis, is that it is based on the transactional side of housing which only represents what is happening at the “margin.” The economic importance of housing is much more than just the relatively few number of individuals, as compared to the total population, that are actively seeking to buy, rent or sell a home each month.
To understand what is happening in terms of “housing,” we must analyze the “housing market” as a whole rather than what is just happening at the fringes. For this analysis, we can use the data published by the U.S. Census Bureau which can be found here.
Total Housing Units
In an economy that is roughly 70% driven by consumption, it is grossly important that the working age population is, well, working. More importantly, as discussed in “The Only Employment Chart That Matters.”
“Full-time employment is what ultimately drives economic growth, pays wages that will support household formation, and fuels higher levels of government revenue from taxes.”
To present some context for the following analysis, we must first have some basis from which to work from. Our baseline for this analysis will be the number of total housing units which, as of Q1-2015, was 133,575,000 units. The chart below shows the historical progression of the seasonally adjusted number of housing units in the United States.
