Friday, January 15, 2010

Sixty years of residential fixed investment

Here's a look at six decades of real private residential fixed investment. Notice that it has fallen by more than half since the peak. Also notice that it appears to have bottomed.

Note that, in economics, building new housing is considered investment but purchasing existing housing is not. Thus, a real estate "investor" who buys an existing condo as a rental property does not directly contribute to residential fixed investment.


  1. ISTM that how long it will take the market to chew through all that surpluss depends greatly on how much of that excess investment was on more UNITS of housing, and how much was on more PER UNIT of housing. To the extant that we spent more per unit we're likely to consume the surplus more quickly (good for builders) but the price will still have to fall to fundamentals. (bad for banks)
    --Jim A.

  2. I would not look at the attached chart and say that it has bottomed. Clearly, for the time being the dropped has been halted through significant government spending on residential housing (MBS, low interest rate, tax credits, etc.). However, look back at the 1980's and you will see a similar pattern where we exit one recession and enter another. I would expect the same thing to happen here. We are definitely not out of the woods yet.

  3. Basic technical analysis of chart data shows that the trend line connecting the last two dips has been penetrated to the downside by a significant amount, which means that there's a far greater chance of the $$ axis dropping, than moving up in the near-term.

    A bottom would be indicated by the bouncing off of a supporting trendline. Since support was penetrated, the support zone has now become resistance.

    The recent bounce is simply a pause before a larger move down. Most of the charts of everything in the US stock market is following the same exact pattern right now.

  4. So if I'm reading the chart correctly, Real Private Residential Fixed Investment is at the same level it was in about 1972, 38 years ago. That's an astounding amount of equity loss.

    Given that the decline seems to still be on it's straight line plummet downwards, investing in real estate at this point is foolhardy. The bottom may be a long ways off.

  5. It would be nice if this really was the bottom, but most of the time we don't know where a bottom really is until we see it a year or more in the past.
    This goes for stocks, bonds, currencies, real estate, just about any investment you can think of.

  6. I looked at the Zillow estimate for Manassas, VA, which is a DC suburb which has been hard hit by the housing bust. At the start of the housing boom (around January 2001) the average price for a home there was around $132,000, and now it is around $160,000. That is about a 2.4% annual increase in price. This has reliably brought down prices in communities within a 35 minute commute of Manassas such as Linden, Va.

    When does the carnage stop?

  7. Great website:

    Notice for Fairfax County, the mortgage delinquency rate was 1.43% year over year, and 2.68% for third quarter 2009.

    Perhaps banks are being hard with lending money in order for housing to reach the bottom quicker.