TD Economics: Population Shifts to Build the Future of East Coast Housing Market

CHERRY HILL, N.J. and PORTLAND, Maine, June 9, 2011 /PRNewswire/ -- The U.S. housing market may be in a funk, but the good news for the East Coast is that underlying today's weakness is an opportunity for future strength, according to a report released today by TD Economics (www.td.com/economics), an affiliate of TD Bank, America's Most Convenient Bank®.  

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TD Economist Alistair Bentley, the report's author, forecasts that two distinct phases of homebuilding will unfold along the East Coast in the coming decades: a broad cyclical rebound, which will take place in almost every state over the next five to seven years; and a longer-term trend driven by population growth, leading to vastly different patterns of housing construction in the Northeast and South Atlantic.

"Almost every state along the East Coast will enjoy a burst of construction activity at some point over the next five to seven years, as homebuilding catches up with fundamentals," Bentley says. "Changing demographics will lead to different trends in housing construction beyond the medium term, however, as population growth is slated to slow. This slowdown will be more pronounced in the Northeast and limit the need to add more homes to the region's existing stock, but the South Atlantic will continue to experience a rapid expansion in the existing housing stock between 2020 and 2030."

The TD Economics report points to population growth as the key determinant of home-building activity in the long term. A growing population increases the number of households in need of shelter, so states with higher population growth rates should support fundamentally higher levels of construction. Bentley concludes that low housing activity levels in many states today are at odds with otherwise supportive demographic trends.

This suggests that homebuilding is bound to rebound over the medium- to long-term, especially in the South Atlantic states, where construction activity has suffered precipitous declines but where population growth is projected to remain robust for years to come. Bentley estimates that Florida's demographic profile, for instance, should support new housing starts of around 150,000 per year on a long-term basis, whereas they currently linger around 40,000 per year.

Bentley reckons that the bounce-back over the next five to seven years won't be limited to the South; it will be significant in many northern states as well, with housing starts more than doubling in most cases. New home construction in Connecticut and Massachusetts, for example, currently sits at 62 percent and 56 percent below trend, respectively.  

But after this initial rebound, demand in the Northeast is poised to slow in the long run, owed to an aging population and weak migration trends. Over time, home building activity in the region will start to diverge from that of the South. "Home building will become more centered on replacing and improving the existing stock of housing in the Northeast," Bentley says, "while in the South, housing starts will be driven by demand for new housing units."  

However, Bentley is careful to stress that this is a long-run effect. According to him, "a broad cyclical rebound in homebuilding will take hold in almost every state over the next five to seven years, as pent-up demand pushes construction back towards fundamental levels."

TD Economics provides analysis of global economic performance and forecasting, and is an affiliate of TD Bank, America's Most Convenient Bank.

The complete findings of the TD Economics report are available online at http://www.td.com/economics/special/ab0611_lrhousing.pdf.

For more information or interviews, reporters may contact the TD Economist directly:

SOURCE TD Bank

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