Since the end of the Great Recession in mid-2009 virtually every sector of the US economy has recovered and exceeded prior levels in economic activity. Every sector except housing, but that might be changing.
As we have mentioned before, the fundamentals for continued US economic growth are strong even though housing, one sector that has lagged, was yet to recover. Housing now seems poised to accelerate and that is good news for the economy if we can find the workers.
There have been numerous reasons postulated for housings slow growth; the lingering psychological effects of the Great Recession, the end of sub-prime loans, bank's unwillingness to lend, the delay of Millenials forming households, etc. We believe it is likely a combination of all these factors have contributed to slower housing growth. We believe as well that all of those factors have receded and that we're on the cusp of a housing boomlet. We see two factors driving that - a record low Vacancy Rate and Millenial Household Formation returning to Life Cycle Theory expectations.
Increasing household formation, especially by Millenials drives up the need for housing and as they buy or rent homes it also increases the need for furniture, appliances, etc. The next step is usually children which creates not just a need for 18 to 22 years of spending on those children, it often means a larger home.
A record low Vacancy Rate simply means that the housing supply is tight. As seen in the chart below, Housing Starts have returned to an 'average level but well below the previous peaks. At the same time, the US Homeownership Rate is relatively low, while the Vacancy Rate is at historically low levels.
The average US population growth is slightly greater than 2,000,000 people per year, the unemployment rate is at record lows, wages are rising the fastest in real terms in decades, Millenials are forming households and starting families, and the housing supply already tight. There is little doubt that homebuilders will recognize the increasing potential gap between supply and demand with so many of these economic drivers at or near record levels. We expect homebuilders to increase the rate at which they are building homes to meet this demand. As we have said previously, we expect to see some acceleration in economic activity and growth in 2020 - with one caveat - we may need to find more workers. The JOLTs reports (Job Openings and Labor Turnover Survey) this month reported job openings of 7.25 million, the 19th consecutive month over 7 million. But, currently, there are only 5.8 million people looking for jobs, the lowest level in 2 decades, and that could be a limiting factor in economic growth.