Memories of the financial collapse of 2008 and the subsequent Great Recession remain vivid, and for most people housing was the root cause. For this reason, as well as RoMac Building Supply’s reputation for providing information on the commodity and construction markets, I am asked daily about the status of the housing market.
Most people believe that if the economy slows or crashes again, the first warning sign will flash in the housing market. While I think housing will turn down if the economy falters, the warning signs of another recession will come from other sectors of the financial markets, not from housing.
By historic terms, the United States housing market since 2010 has under performed badly in the last four decades. According to the United States Census Bureau, housing starts from 2010 through 2018 averaged 1,079,000 per year, which is 39 percent less than the average number of housing starts per year in the 1970s and 27.7 percent less than the 1980s.
In fact, on average, housing starts since 2010 are at their lowest average per year, per decade since housing starts have been tracked. While the 1,242,300 housing starts in 2018 are a huge improvement since the Great Recession, last year’s starts are still way below the decade average in housing starts since the government started keeping records in 1959.
There are some spooky numbers built into the housing market, which demonstrate my thesis that housing never recovered from the Great Recession. In 1979, housing starts were 1,745,100 and the average 30-year mortgage interest rate for the year was a whopping 11.22 percent. At that time, the United States population stood at 225 million.
In 2018, as compared to 1979, housing starts are down 502,800 units while interest rates have gone from 11.22 percent to 4.54 percent, which is down 6.68 percent. In 40 years, mortgage interest rates have dropped nearly 60 percent. However, instead of gaining, housing starts dropped 28.8 percent. These housing numbers become even more inexplicable when you consider the United States population increased to 329.1 million, which is up 104.1 million, or 46.3 percent.
If basic population and interest rate mathematics were in play, 2018 housing starts as compared to 1979 should be in excess of 2.5 million, which is more than double the actual starts for the year. The reason why housing starts remain so low is simple — affordability. Wages have not kept up with the price of housing. Government codes, impact fees, building fees, material costs, labor shortages and the price of land have the cost of owning a home out of reach for most Americans.
The next great economic turndown will probably be named the Great Debt Recession or Depression depending on how far the economy falls off the cliff. Keep a close eye on corporate debt, which is in excess of $10 trillion.
The best advice for any potential homeowner is don’t overbuy, look for real value and be aware that the more affordable homes will take less of a pricing hit during the next great economic turndown. Finally, these numbers also tell us there is a huge housing affordability crisis in America fueled by greed and government overreach.
Don Magruder is the CEO of RoMac Building Supply. He is also the host of the Around the House TV show that airs on LSTV on Xfinity 13, Spectrum 498, Prism 83, and LakeSumterTV.com... M/W/F at 1:00pm and 6:30pm, Tu/Th at 9:00am and 4:00pm, and Saturdays at 7:00am, Noon, and 6:00pm.