Lead and lag economic indicators can either foretell or confirm an economy’s direction. Let’s dive into the numbers and see what they are telling us.
Housing Starts:
One in six jobs in the economy is directly or indirectly dependent on the direction of the housing market. To put this in perspective, housing starts at the height of the housing boom were 2.3 million annually in 2004 and 2005. Latest economic releases indicate they are down to less than 800,000 annually. This is a 17-year low; however, with a larger and growing population base, the numbers are even more negative. The inventory of houses for sale is over nine months, and even with big discounts, homes are not selling. The recent rise in long-term mortgage rates will further depress this market. Each time mortgage rates increase 100 basis points or 1%, 200,000 fewer people qualify for home loans.
Are we headed for a decade where people, particularly the younger generation, modify their housing expectations? The younger generation wants to own a home, instead of a home owning them. My prediction is that the most salable new homes will be energy efficient and require minimal maintenance with a low to modest price tag. Developers and builders who understand this will lead the way back in the housing market.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.