About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Tuesday, March 19, 2013

New Home Construction Permits

My long term track record with US housing has been a very good one. Back in late 2001,
when I was still doing investment advisory / consulting on a part time basis, I projected a
long term top in home prices for 2007 based on deteriorating demograhics. The industry
turned mad as the decade progressed and I lost interest. When I saw the totals for new home
construction at the peak over 2006 - 08, I figured there was so much over-capacity in
housing, there would be no recovery until 2011 earliest.

Right now, I think the beginnings of a new boom in housing are still about 7-8 years away
and will largely be reflecting the emergence of Gen. Y (born 1985 -2005 and nearly 80 mil.
strong) as first time buyers. Even then, the money to be made will be more from building
and modernizing homes than from home price appreciation.

Unless there is a powerful surge in immigration, I do not think underlying demand for housing
will exceed 1.7 mil. units a year. (I would welcome an aggressive and sensible program of
accelerated immigration but that is a subject for another time as it is politically fraught).

Prospective homebuyers have cut their leverage and are in better shape on a cash flow basis,
but too many younger people, many saddled with college loan debt, are low on down
payment capability.

Now, building permits have been an excellent leading economic indicator over the years, but
failed to signal properly in the present recovery because the recession hit the entire housing
business so hard. But, a recovery is emerging in the US. Housing Permits I would be
delighted to see permits rise back up to 1.5 mil. annual over the next few years. I think that is
do-able, but I would be careful to contain optimism. After all, the middle class has been
pummeled economically in recent years, and, when you think about it, mortgage finance
capability needs to be re-built.

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