Why Is Construction Activity Still So Low?

Forbes article examines factors holding back the housing recovery.

A new article in Forbes examines factors holding back the housing recovery. Here is the introduction to the story and a link to the full article at the end.

Trulia’s Chief Economist Jed Kolko reveals why construction won’t fully recover until housing and labor market fundamentals improve. Nationally, the vacancy rate is still too high, and household formation is too low to support normal levels of construction activity.

New home construction starts and new home sales are recovering much more slowly than other housing indicators. In August, new home starts and new home sales were 40-50% below normal levels, in contrast with existing home sales, which were just 2% below normal. (By “normal,” we always mean the long-term historical average, not the peak of the bubble, which was anything but normal.) Likewise, Trulia TRLA +3.3%’s latest Bubble Watch reported that prices look just 5% undervalued.

What’s holding construction back? The vacancy rate and household formation are two fundamental drivers of construction demand, and both still look weak.

To read the entire article, click here.