The U.S. housing market is still suffering from a significant supply/demand imbalance. In the half decade to 2006, there was a significant housing construction boom (adding to supply) that was not matched by sufficient population growth (limiting the demand side of the equation).

Although short & medium-term issues such as interest rates and even the sub-prime market influence the U.S. housing landscape for now, demographics can ultimately also play a role.

The influence of this factor has waned somewhat in recent years in the U.S. as housing excesses have muddied the water, but the historical record is clear that demographics must ultimately determine the amount of housing stock in the U.S. market.

The pace of U.S. population growth right now is on the low end of normal, and thus one might expect that the sustainable pace of housing starts in the U.S. – once the recent hub-bub is done – will be closer to 1M units per year than to 2M units per year.

But given that population growth is still, nonetheless, close to 1% per annum (an increase of approximately 3 million people per annum), the excess supply of housing should slowly but surely start to unwind.

In fact, the weaker the number of new housing starts are in the months ahead, the faster the house price recovery will emerge.