Merrill Lynch economist David Rosenberg sees a silver lining in the ugly housing figures that were released earlier this week:
[After adjusting for homes not “built for sale,”] starts sagged sharply in January to a mere 245K units at an annual rate, down 12% sequentially and 54% on a year-to-year basis.
That 245K level of single-family starts in January compares to the new home sales rate of 330K in December. In other words, builders have managed to pull the growth rate of new housing supply below the prevailing growth in new demand. So, we can now say with a reasonably high level of comfort that we are hopefully entering a new and final chapter of this unprecedented decline in residential real estate prices.
But make no mistake – it is going to be a very long chapter. The builders waited far too long to embark on this process of taking supply off the market, and as a result, we still have a near-record 2.3 million homes that are unoccupied and have a ‘For Sale’ sign on the front lawn. The ‘frictional’ level is closer to 1.2 million (where the long-run normalized level is), which means that the ‘excess’ supply overhanging the market is around 1.1 million units. Again, that is close to an alltime high, and while we would now expect to start seeing this backlog of vacant homes for sale decline, it will take years before it reverts to the mean.