Kasriel: How does an excess supply get remedied?
Source: http://www.investmentpostcards.com/2009/06/18/kasriel-how-does-an-excess-supply-get-remedied/Posted on Thursday, June 18th, 2009 | In Market Commentary
This post is a guest contribution by Paul Kasriel* of The Northern Trust Company.
How does an excess supply get remedied? By allowing prices to fall and by cutting production. This remedy applies to everything from hogs to houses. It is well documented that the prices of houses have plummeted. What may be less well known is that newly-started production of single-family homes has come back into equilibrium with the sales of new single-family homes – at least through April. Chart 1 documents that starts of single-family homes ran at a seasonally-adjusted annual rate of 368,000 in April, a touch above sales of new single-family homes at a seasonally-adjusted annual rate of 352,000.
Chart 2 shows that in recent months the ratio of single-family house starts to sales of new single family home sales is at it lowest level in 47 years. This is not to gloss over the fact that there still is a large supply overhang of new homes for sale that either have been completed or are under construction (see Chart 3).
But again, markets work. The housing market is moving toward a new equilibrium with production being curtailed and prices falling.
Source: Paul Kasriel, Northern Trust – Daily Global Commentary, June 15, 2009.
*Paul Kasriel is Senior Vice President and Director of Economic Research at The Northern Trust Company. The accuracy of the Economic Research Department’s forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005. The accuracy of Paul’s 2008 economic forecast was ranked in the top five of The Wall Street Journal survey panel of economists. In January 2009, The Wall Street Journal and Forbes cited Paul as one of the few who identified early on the formation of the housing bubble and foresaw the economic and financial market havoc that would ensue after the bubble inevitably burst.
Last 5 posts by Prieur du Plessis
- Prieur’s readings (November 21, 2009) - November 21st, 2009
- The lie of the investment land, according to Dylan Grice - November 21st, 2009
- Gross: Anything but .01% - November 21st, 2009
- The week ahead - November 21st, 2009
- Don Coxe webcast – updated (November 20, 2009) - November 21st, 2009
Director of Economic Research, Economic Research Department;, Forbes, investment postcards, Lawrence R. Klein;, Market Commentary, Northern Trust, Paul Kasriel, The Northern Trust Company;, The Wall Street Journal, Vice President and Director
 About Prieur du Plessis (http://www.investmentpostcards.com)
Prieur du Plessis has 25 years’ experience in professional investment research and portfolio management. More than 1,000 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns. He has also published a book, Financial Basics: Investment. Prieur is chief executive and principal shareholder of South African-based Plexus Asset Management, which he founded in 1995. The group conducts investment management, investment consulting, private equity and real estate activities in South Africa and other African countries. Plexus is the South African partner of John Mauldin, author of the Thoughts from the Frontline e-letter, and also has an exclusive licensing agreement with California-based Research Affiliates for managing and distributing its enhanced Fundamental IndexTM methodology in the Pan-African area. Prieur is 52 years old and lives with his wife, television producer and presenter Isabel Verwey, and two children in Cape Town, South Africa. His recreational activities include long-distance running, motor cycling, traveling and reading. |
No recommendations, either expressed or implied, are being made to buy, sell, hold or short any of the mentioned stocks. No legal, tax or accounting advice is expressed or implied. Always contact your attorney, CPA, or tax advisor before acting on any legal or tax issues. StraightStocks.com is not responsible for the content, products, or services of any of the advertisers on this site. StraightStocks.com receives compensation from advertisers on this blog. Services and products referred to herein are trademarks, registered trademarks, servicemarks, and/or registered servicemarks of their respective trademark or servicemark owners.