Tuesday, May 24, 2011

Construction Bust Greater Than Boom



This graph (via Brad DeLong) shows the trend in new residential construction and it depicts the extent of the boom above trend and the bust below trend. The fall in construction below trend is much greater than the overbuilding during the boom. The implication is that demand for new housing will begin to outstrip supply. The problem is that nominal income is not sufficient to satisfy latent demand. Its also the case that the continuing decline in prices, due to distressed sales, is not a strong signal to developers to expand supply.

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