Construction conundrum: is the us real estate market stagnating?

Condos being built in Brooklyn, New York Photo: Michael Tapp

The US real estate market is stagnating, according Alan Greenspan, who warns that construction has fallen far from the pre-recession boom.

Speaking to CNN, the former chairman of the Federal Reserve - who predicted the housing crash in 2005 - warned that construction of residential and commercial property is not back to where it should be.

"We haven't come out of the bottom," he said. "We are in the position now of secular stagnation."

Before the recession, 8 per cent of American GDP was made up by construction, a sector that now makes up 4 per cent of GDP. Since World War II, he noted, the 10 recessions and subsequent recoveries that have occurred in the USA have been kickstarted by the construction industry.

"Single family housing is still only one-third of where they [sic] were in 2006 and earlier," he added.

Nonetheless, he admitted there was a current upturn in activity. Indeed, although nationwide housing starts dropped 11.1 per cent in May 2015 to a seasonally adjusted annual rate of 1.036 million units, according to the US Department of Housing and Urban Development and the Commerce Department, the number of overall permits issued rose 11.8 per cent to a rate of 1.275 million - the highest level since August 2007.

"The uptick in permits shows our builders are optimistic that more consumers are returning to the housing market," comments Tom Woods, a home builder from Blue Springs, Mo and Chairman of the National Association of Home Builders, who adds that starts and permits figures for the second quarter of 2015 are "shaping up to be stronger than the first".

The NAHB's latest housing market index also shows that builder confidence climbed in June 2015 to its highest reading since September 2014.

"Builders are reporting more serious and committed buyers at their job sites," adds Woods, "and this is reflected in recent government data showing that new-home sales and single-family construction are gaining momentum."

"The HMI indices measuring current and future sales expectations are at their highest levels since the last quarter of 2005, indicating a growing optimism among builders that housing will continue to strengthen in the months ahead," comments NAHB Chief Economist David Crowe.

Woods concludes, optimistically: "Even with this month’s dip in production, it should be a solid year for home building."