Housing Material And Lumber – Where Are We Headed?
Housing Material – There have been articles lately that emphasizes the possibility of a severe housing shortage next year, as new home supply dwindles and the bargains in foreclosures evaporate. I often read that housing will not improve until employment improves. An interesting conundrum, since in past recessions, employment increased during housing recoveries. I don’t think that most people, even economists, think through the relationships involved in new home construction. So, which came first, the chicken or the egg?
After construction of new homes continues, it will trigger the creation of new jobs when construction workers return to work. How will this affect national homebuilders such as Beazer, Pulte, and Hovnanian? What about manufacturing jobs made for wood, building materials and products such as roofs, doors and windows? Not to mention electrical and pipe materials and equipment.
Taking a step further, what about the technology that enters a new home? Most people will buy new widescreen TVs, sophisticated sound systems, and computers and printers for their home offices. Many wood mills and panels have been restricted, closed and even demolished or converted into Biomass Power Plants. Increased construction of new homes will provide encouragement to the remaining producers, such as Weyerhaeuser, Lousiana Pacific, and Canfor. What about “leg ups” for the automotive sector? Construction workers will need a new truck.
The American construction workers I see everyday drive Ford, GM, and Dodge trucks. Perhaps the taxpayers would be the beneficiaries of a boost in the automotive/truck sector, by virtue of government stock ownership. What about the heavy equipment you need? The few remaining building material suppliers would have to hire new workers and buy new equipment, since over 80% have closed, and the remaining ones have scaled-down.
The American construction workers
Caterpillar would obviously have to add workers to produce the heavy equipment that would be required. What about all of the real estate agents that have been sidelined during the housing slump? Everyone tends to spend freely when their commissions are good. And regional and community banks, of course, would be huge beneficiaries from the loan demand, once they decide that it is safe to lend again. Even the giants Freddie Mac and Fannie May would return to viability.
What about confiscation? Fewer houses will take over because of increased employment, and foreclosure inventories must decrease proportionally. When new home construction increases, work in all these fields must increase. With the increase in employment, there will be an increase in demand for housing because the creation of new households resumed the pre-2007 “normal” level of 850,000. Consumer spending and consumer confidence will increase as a result of job creation.
The wood and building materials industry has sunk me so that it is difficult to take an objective view. However, in my opinion, this is not a “if” problem, but one of the “when” will the increase in new household formation and construction of new homes reach a “tipping point”, and begin to increase at an increasing rate. This is really a complicated and far-reaching puzzle, but there is no question that it will become an independent growth engine, once the “critical point” is reached.
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