Housing bubbles: why are Americans ignoring reality?

As an example, during the decade of the 1990s in Australia, as people became more affluent and family sizes decreased, household sizes moved from about 2.8 per household to approximately 2.6 per household, which was a big driver of the residential construction industry. As the population became more affluent, they bought or built more second or vacation homes as well. Australia’s population increased by about 12 per cent through this period, as its housing stock increased by in excess of 22 per cent. (access Australian Bureau of Statistics for further information).

Property commentators “estimates” are always interesting of course, but as with my own, should be treated with greatest caution.

To avoid getting distracted with interesting statistical noise, it is extremely important to focus on the major structural statistics, as I will now explain.

The reality is that the only true measure of scarcity and abundance - is price.

Over the years Dr Housing Bubble, and many other American commentators, have persisted in ignoring the glaring contrasts of the California and Texas housing markets. Let’s consider the latest Houston Association of Realtors September 2009 Monthly Report, which makes very interesting reading indeed.

For the September month 2008 and September 2009, the numbers are as follows - property sales from 4,336 to 5654 (+30.4 per cent), dollar volume from $0.877 billion to $1.102 billion (+25.7 per cent) and median single family sales price $155,920 to $156,200 (+0.2 per cent).

This is because Houston (as with Texas and most of middle North America), is a “normal market”. That is, it is not a political plaything (see "MPs can't escape party donors", The Australian) or a casino as California clearly is.

Not surprisingly, the US based major construction consultants, Hanley Wood, earlier this year rated the Houston residential construction market the healthiest housing construction market in the nation. I touched on these matters within an article back in February this year "Housing Bubbles: Learning From Houston".

Now let’s turn to discussing some numbers about “abnormal markets” and what is accurately referred to as the “Failed State of California” ("Failed states”, Washington Examiner), where it appears the politicians are determined to wipe the residential construction industry off the map.

The state of the residential construction market in California can only be described as “horrific”.

On October 26 2009, the California Building Industry Association released its Report on the residential construction permit activity for the month of September 2009, stating that there were just 2,920 permits issued for the month, and that further to this, they have again revised downwards their permit estimates for 2009 to an appalling 37,700 units.

Unbelievable figures, when one considers that the estimated population of California is 37 million.