Summer 2012 will be remembered in real estate circles as the summer of no inventory and the return of the building industry. Yesterday it was reported that housing starts declined by 1.1%; a number that might give pause to many thinking the worst was over for the beleaguered housing industry. Yet Wall Street rallied. Why? Building permits. Nearly 900,000 building permits were pulled by developers nationwide. The significance is that building permits portend future building activity. As we know, there is no greater engine for the economy than building. It’s not just timber, bricks and concrete, it’s everything that goes into a home: drywall, cabinets, door handles, hinges, roof tile, copper, furnaces, water heaters… it’s the workers needed to make pipes, air conditioners and windows. It’s the suppliers of raw materials that go into glass, ceramic tile, plastics, trees for lumber and baseboards. And those people manufacturing or installing or transporting those products are responsible for scores of jobs; and those building related jobs mean spending and that in turn means more jobs and which leads to more shopping and more jobs. Jobs, jobs, jobs. Yes, the summer of 2012 will be the start of the return of the building industry, and not a moment too soon for all of us in this, the great American economy.
Who do we have to thank for this? To start with, Ben Bernanke and the Federal Reserve, for keeping rates at historical lows and helping to fuel buyer demand. But how about the banking industry? I know, heavy sigh; it’s almost the economic equivalent of crediting Hitler for the creation of Israel, totally absurd. Yet the shadow inventory we’ve been hearing so much about for so many years never materialized. Why? Because the banking industry recognized that flooding the market with distressed properties was not in their best interest, which has helped the market to stabilize and create a shortage in housing. To the chagrin of those buyers who didn’t use their home’s equity as a cash machine, or didn’t bite off more than they could chew and thus felt entitled to a slew of cheap houses, the banks did not cooperate. They have not release the flood gates of distressed properties. The upshot of this is that our inventory has become scant which is putting pressure on prices and that in turn has led builders to fill the void by building more homes, or at least planning to. Further, it has fueled construction for rental units to meet the ever increasing demand resulting from the rise of those distressed former home owners in need of housing. The obvious fact that so many doomsayers of housing in America missed, was that our population has not gone down over the past 6 years but rather has increased and with it, the need for more housing. Granted, while the type of housing required may have changed in many areas from single family to that of multi-family, it has none the less been neglected and we are now poised to reap the benefits in the form of increased housing production and the return of the home building industry. So it is, the housing industry and the building industry in particular may actually have survived the cataclysmic disaster we’ve called the financial crisis. As appalling as it may be to those harmed by the banking industry’s handling of their personal situation, the contribution of these financial institutions cannot be lightly dismissed. This reminds me of the quote by the timeless Mark Twain upon reading his own obituary in the New York Journal some 100+ years ago: “The reporting of my death are greatly exaggerated.” So too has the demise of housing in America been greatly exaggerated.