Experimental feature

Listen to this article

Experimental feature

Some things just cannot be wished away. Like tattoos and bitter family feuds, the US housing market is still there, stubbornly refusing to improve. The Commerce Department on Tuesday released figures on the state of US residential construction. Based on survey data, new housing starts in April appear to have dropped to an annual rate of 458,000 – the lowest level since records began in 1959. Construction activity is now four-fifths below the peak of the building frenzy in early 2006. The trend has defeated every previous effort to call a bottom in the market.

The US, with a growing population, cannot stop building houses, and the rate of construction is now below that of household formation. But this long-term demand need not translate into an improved outlook for the housing market any time soon. The stock of homes available for sale, according to the National Association of Realtors, stands at 3.7m, equivalent to 10 months’ supply given current sales. And that figure does not include shadow inventory – homes foreclosed on by banks but not yet made available for sale, either to avoid further depressing prices or to postpone recognition of the loss.

Meanwhile, foreclosures are still rising – up by 32 per cent year on year in April, according to RealtyTrac – and will continue to do so while the ranks of the unemployed swell. That, in turn, puts further pressure on house prices, which means more losses for the banks, and greater difficulty when it comes to expanding consumer lending. So consumer spending will continue to suffer at the cost of more jobs. The housing market has moved beyond a cyclical swing from boom to bust into a fundamental cycle of negative feedback that weighs on the whole economy.

This downturn has not yet run its course.

To e-mail the Lex team confidentially click here
To post public comments click here

The Lex column is now on Twitter. To receive our daily line-up and links to Lex notes via Twitter, click here


Lex is the FT’s agenda-setting column, giving an authoritative view on corporate and financial matters. It is also one of the few parts of FT.com available only to Premium subscribers. This article is provided for free as an example. A Premium subscription gives you unlimited access to all FT content, including all Lex articles and the FT mobile Newsreader.

Subscribe now

If you have questions or comments, please e-mail help@ft.com or call:

US and Canada: +1 800 628 8088
Asia: +852 2905 5555
UK, Europe and rest of the world: +44 (0)20 7775 6248

Copyright The Financial Times Limited 2019. All rights reserved.

Comments have not been enabled for this article.

Follow the topics in this article