Monday, November 3, 2008

Housing Starts

It's common to hear that the housing industry is in a depression, and that this type of collapse is unprecedented in American history. When one looks at house prices, which we did here, one can see why. There was a huge run-up in prices, and a huge collapse as a result. Those who bought in at the height of the market are suffering now. But for the housing industry itself, the construction pattern is actually very familiar. Here's a look at US housing completions since 1968 (note that 2008 is an estimate based on 2 full quarters):


The boom and bust phenomenon in housing construction is common throughout history! But it just hasn't happened for a while, which may have fooled people into thinking this is not a highly cyclical industry. Notice that for whatever reason (cheap credit, lack of supply due to there being no preceding boom and/or other factors), there was no bust last recession.

Eventually, however, this industry will be back. When that is, is anybody's guess, but when the market is fearful, one can find companies in unfavoured industries that trade at discounts to even their net current assets, which is what value investors try to do.

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