July 19, 2011

THE NATIVISTS ARE PERFECTLY HAPPY TO EXCHANGE THE BROWN FOLK FOR A DEPRESSION

A demographic depression (SCott Summer, 7/18/11, The Money Illusion)

Jim Glass sent me some very interesting data on household formation, which casts a very different light on the recent housing crash.

By my simple measure recent housing starts peaked with an inventory of 40% of an average year's worth of starts above the trend line in 2007. That's a cyclical high but a typical one. About the same or a little higher was reached in three other cycles since 1960.

But the plunge in starts since 2007 is unprecedented -- by the end of 2010 cumulative starts were 72% of an average year's worth of starts below trend. The next-lowest figure was 46% below trend back in 1970. If things were "normal" this would predict a huge boom in housing starts soon.

But housing starts are *following* household formation, which is plunging even faster, like an ICBM heading straight to its target.

In 2007 household formation was 1627k (average 1998-2007: 1499k) and housing starts were 1355k (average 1998-2007: 1716k). In 2010 household formation was all of 357k, down 78% from 2007 and down 76% from the prior ten year average. Housing starts were 587k, down 57% from 2007 and down 66% from the prior ten years. That's a big fall, but it is still *well behind* the fall in household formation.

If I still had my blog I'd post the graphs -- the line for household formation is heading straight down like to the bottom of the sea, it's three times the fastest-deepest decline of the last 40 years. The line for housing starts looks like it is just striving to not fall too far behind.

I hate to be the bearer of bad news, but that light at the end of the tunnel is an onrushing train called falling household formation. It's caused by three factors:

1. Less immigration due to the post-2006 crackdown.

2. Less immigration due to the severe recession and high unemployment

3. 20-somethings who can't get jobs are living with their parents.

The problem is not that we built too many houses and need to work off the excess. Yes, we did, but we worked off that excess long ago. No the current problem is crashing demand for homes due to an unprecedented plunge in household formation. Call it a demographic depression.


Looked at objectively, Tom Tancredo and company got exactly what they hoped for. Killing the economy just created a multiplier effect to get more immigrants to leave or stay away altogether.


Posted by at July 19, 2011 5:30 PM
  

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