Tuesday, December 22, 2009

Housing Numbers a Year Later

A year ago I ran the numbers on housing with an update last June. It's time to have another look.

The basic premise is that housing only really gets consumed when someone uses it as a home. Sales to investors only shift who owns the supply. Hence, the things to look at are housing completions (additions to the supply) and the change in the number of households (additions to the demand.)

My first crack at the numbers indicated that we had an excess supply of about 1.5 million housing unit at the beginning of 2008. Last June, it looked like we still had about 1 million too many at the beginning of 2009. Housing completions have been running at an annual rate of about 800K this year which is about half the normal annual rate. If household formation continues at the normal rate, we should absorb another 800K of the excess inventory in 2009 and the rest in the spring of 2010.

Given the recession, I suspect that new household formations may be down. If that is the case, it will take a bit longer to run through the inventory overhang.

From this, I infer a number of things. Sales data, foreclosures, and re-financing activities aren't going to tell us much about the real state of the housing market until we burn through the rest of the inventory. Prices should start going up once the inventory is gone. Looks like the next 6 months is the time to buy low - depending on location of course. Financing isn't going to drive this - forming households faster than we complete new homes will.

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