February 3, 2013
Once again, Congress and the White House have largely put off the big decisions. Yes, they avoided the so-called “fiscal cliff” — a crisis that they created. But essentially the only certainty is that taxes are going up on millions of Americans, not just on the wealthy.
The lack of a more comprehensive deal and the threat of another cliff-hanger leave in place many of the uncertainties that had slowed hiring and business investment. And with less disposable income due to higher taxes, consumer spending could weaken.
Fortunately, there’s one area in which a sustained recovery appears solid. Look at just about any indicator related to residential construction, and it’s clear that a rebound is under way.
This recovery will help the trucking industry, starting first with flatbed carriers and eventually trickling down to pretty much any fleet operating van equipment. There’s a fairly minor downside, however: Trucking draws from the same labor pool as home builders, so a rebound in housing could slow fleet growth.
Housing starts in December were at their highest level since June 2008, according to preliminary figures from the U.S. Census Bureau. Month-to-month data tends to be volatile, but housing starts have been up by double-digit percentages year over year every month since October 2011. Home builders believe the future is rosy because permits authorized for new residential housing are at their highest level since July 2008. Permits have risen year over year every month since May 2011.
A sustainable recovery in housing is virtually guaranteed.
The inventory of houses for sale is tightening severely. The supply of existing homes for sale is just 4.4 months based on current sales rates, according to the National Association of Realtors (NAR). That’s the tightest inventory since the height of the housing market in May 2005.
As for new homes, the inventory — 149,000 units at the end of November — hasn’t been this low since the Census Bureau began keeping records in 1963. Meanwhile, the supply of homes in foreclosure has dropped steadily. And similar to what happened with idled and cannibalized trucks a few years ago, many of those homes are no longer viable.
Given the tight inventory, increased demand will spur accelerated growth in residential construction, and increased demand seems inevitable. Employment is one of the biggest factors in housing demand. While job growth remains fairly sluggish, the U.S. economy has added jobs every month since October 2010, and there are no signs of this trend reversing. “Momentum continues to build in the housing market from growing jobs and a bursting out of household formation,” says Lawrence Yun, NAR’s chief economist.
Another factor is the rate of homeownership. Over the long run, 65.4 percent of households are owned by their occupants. Since 1996, the homeownership rate has been above the trend line, peaking at 69.2 percent in 2004. Since then, the rate has fallen sharply, but it is now near the historic average and likely is stabilizing.
The one big question mark is how demographic changes will affect the housing market. The Census Bureau projects that between 2010 and 2020 the United States population will grow by only 8.1 percent, but the over-65 population will surge by 39 percent These people will downsize, but how they do so matters. We might see new construction of condos, garden homes and assisted-living facilities. Or, we could mostly see a churn as retirees and young families essentially swap homes. Probably we will see both, and in any event that is a longer-term worry.
For the next several years at least, housing construction probably will be the economy’s brightest spot, and your customers involved in building, furnishing or landscaping houses and apartment buildings are poised for growth.
Avery Vise is executive director, trucking research and analysis for Randall-Reilly Business Media and Information.