Sweet 16 it isn’t. That’s the Homebuilders Sentiment Index that came out yesterday. It was 16 in December. Any number below 50 represents negative sentiment on the part of homebuilders. So, homebuilders are feeling pretty blue.
You would have thought that with such low mortgage rates and all the talk of a rebounding economy in the stock market that more people would be buying homes.
But, let’s take a look at a number you don’t hear much about, especially from the stock-market cheerleaders, that is very telling about the actual state of the economy and why homebuilders are having so much trouble building homes and apartments.
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That number is the rate of household creation. Household creation is the fundamental driver behind the need for new housing, be it apartments, townhomes or houses.
If you don’t have new households being created, even if you have a growing population, you have little fundamental need for new housing.
New households are created most often when people leave school (high school or college) and get jobs.
When they’ve got money, they can finally afford an apartment or at least share one with friends. When someone, or a group on people, leave the home they grew up in and move into a house or apartment, they create a new household.
There are also some non-economic reasons for household creation, most notably divorces. When a couple divorces, a new household is created, unless they quickly re-marry. That’s why household creation peaked in the 1970s — lots of divorces. But, the fundamental driver of household creation remains kids leaving the house and getting jobs.
Guess what the household creation rate was for the first half of 2010? It was negative. Yep, not a single new household was created in the first half of 2010. That’s never happened since World War II. That means there was no net demand for new housing other than abandonment of old homes. Wonder why homebuilders are so blue?
People always talk about all that pent up demand for housing since we haven’t been building as many new homes. Well, with no new household creation there isn’t much pent up demand.
The primary reason new households aren’t being created is the lack of job creation. Without new jobs, it’s hard for households to form. The fact that there was no household creation tells you how tough it’s been in 2010.
Yes, you can sell new homes when there is no new household creation obviously, but it is a fundamental drag on the market. If you don’t have new household creation, you just don’t need that many new homes and apartments.
If you don’t have job creation, new household creation is tough. And, how many jobs have been lost in the past recession? Answer: Every single one that was created in the housing bubble since 2001. That’s right — almost all the increase in jobs during the boom have now been offset by losses in the bust.
No household creation in the first half of 2010 and no net job increases in a decade — real numbers from the real economy.
About the Author: Robert Wiedemer
Robert Wiedemer is president of the Foresight Group, a macroeconomic forecasting firm that customizes its forecasts for specific businesses and investment funds. He is a regular contributor to Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here
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