Two economists from the Federal Reserve Bank of San Francisco predict that U.S. home builders won’t resume average levels of construction until 2014, and possibly later depending on the inventory of foreclosure properties.
A paper published Monday suggests that an average level of new residential construction will resume in three years “if house prices first stabilize and then begin appreciating, and the bloated inventory of foreclosed properties declines.”
The authors, William Hedberg and John Krainer, assumed for their forecast that housing prices will drop by 2 percent per quarter this year, decrease by 1 percent a quarter in 2012, stay unchanged in 2013, rise by 1 percent in 2014 and then rise by 2 percent a quarter thereafter.
Before 2005, construction levels historically averaged about 1.1 million new homes per year. “However,” Hedberg and Krainer wrote, “over the past several years, the construction sector has added only about 400,000 units annually.”
Rising home prices alone won’t bring home construction back to the average level by 2014. Without a drop in foreclosures, the authors said, home construction doesn’t hit that level until about 2016.
Improvement by 2014 is based on the inventory of foreclosed homes decreasing by 50,000 per quarter starting in 2012. This, the authors note, “is an optimistic scenario,” in part because “the foreclosure inventory is still growing.”
— Robert Digitale