Why do economists see an increase in the building of new homes a good thing for the economy? I mean, sure, the 1.5 percent increase in housing starts, as reported by MarketWatch, means a few more construction crews and builders are busy working.
Usually increased building is coupled with tight housing supply, but recent Census Bureau figures (xls) reveal that 18.7 million homes (including rentals) are vacant. Of those, 14.1 million are empty year-round.
Looking at the numbers, I have to wonder if builders are being fooled into thinking there is a shortage of available homes. That’s because 6.7 million of the vacant properties are being withheld from the market. With another 4.4 million of vacant homes up for rent and millions more designated for other purposes, only 1.9 million of the 18 million are actually for sale.
But you can see the problem – eventually millions more homes may someday flood the market via foreclosure or sale. If that is the case, the housing market may collapse again in a violent manner, leaving those optimistic builders holding the bag.
(Chart on the jump.)