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Study: Three More Years Until Home Building Returns to Trend

WSJ Blogs - by Michael S. Derby

The beleaguered housing construction sector won’t get its groove back until 2014, researchers at the Federal Reserve Bank of San Francisco say.

If house prices are able to stabilize and appreciate, and the inventory of foreclosed properties shrinks, then 2014 will be the year that home-building activity gets back to its “long-run average,” William Hedberg and John Krainer argue in a paper published Monday.

Of course, there are some rather large “ifs” in that formulation, as home prices have defied predictions of recovery for some time now, with periods of recovery giving way to weakness in short order. At the same time, that outlook for foreclosed properties remains uncertain as well, and is subject to government and other regulatory factors beyond the normal push and pull of supply and demand.

In the most recent look at data for the sector, U.S. housing starts in June rose to their strongest level in five months —629,000 at an annualized rate. While a welcome improvement, new-home starts are still very far off their peaks and are also well below their historic average, too.

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