Ready for some good news in the construction industry? After a nearly fatal collapse and 44 months in a coma, it looks like the housing market has awakened and working its way back to health. That’s good news for everybody in construction, because when housing sneezes, the construction industry catches a cold. And when housing recovers, we all eventually get healthier. The National Association of Home Builders calls it the reversal of a trend. We appear to be transitioning from a vicious cycle to a virtuous circle.
The vicious cycle goes something like this: the housing bubble bursts, jobs are lost and a weak labor market depresses the demand for home building. We spent nearly four years in that vicious cycle, but the seeds were sewn years earlier with unrealistic home loans to people who couldn’t afford them, followed by financial shenanigans of historic proportions, followed by foreclosures, abandonments and the decay of entire communities. Even in recovery, we’ll be suffering lingering effects from those misadventures for years to come. Vicious indeed.
The virtuous circle goes something like this: housing starts increase, creating jobs in construction, which leads to improving personal income, which leads to demand for housing, which leads to more housing starts. More housing starts mean homeowners are purchasing appliances and furnishings, boosting the local economy. The new housing eventually leads to new commercial and public areas along with all of the accompanying infrastructure, which leads to – more construction employment.
We’ve been watching the housing starts number in recent months, with 800,000 in mind. That’s the annual number of housing starts it would take to basically get us out of the trough we’ve been stuck in the last 44 months. Recent estimates put the annual number at 872,000. That number is still lower than the “normal” of 1.1 million to 1.2 million housing starts that would signal a robust recovery, but it is enough to indicate that we may be moving out of the vicious cycle and into a virtuous circle.
There are many pitfalls that could break that circle before it gets started, such as the spread of a European recession to North America, inaction in Congress regarding the fiscal cliff and tight lending policies that make it harder for qualified homeowners to obtain loans. And to be sure, there are a great many regional variances in the health of housing. But there are strong indications that the housing industry has a pulse, and that’s not only good for construction and the precast concrete industry, it’s good for the entire nation.