That there is a big problem with excess housing in this country is not really news. Yesterday we received some more information about the extent of the supply issue from an article by Robbie Whelan in the Wall Street Journal.
Pending home sales have collapsed in recent months, down more than 30 percent over May and June following the expiration of the first time home buyer tax credit at the end of April. According to statistics from the article, the country is on pace to see 3.7 million home sales this year, the lowest number since 1996, but for whatever reason, some home builders are still putting up new houses. Mortgage rates are at all-time lows, but low rates are simply not prompting people to buy homes.
The article stipulates that there are at least 2.4 million excess homes in the United States. 650,000 of them are for sale, 900,000 are on the rental market, and another 950,000 are shadow inventory that is being held off of the market by banks or investors who are hoping prices will turn around soon. Much of the shadow inventory is comprised of houses that banks seized in foreclosure. The article predicts that it will take 2.5-3 years to clear the excess supply.
Until we clear the excess supply of homes, the housing market will be hard pressed to recover. Anyone with a basic understanding of economics understands that excess supply and lower than normal demand (because of the state of the economy and the hangover effect from the first time home buyer tax credit) means there will be price decreases. Further complicating the issue is that many of the houses on the market are distressed or foreclosed homes that are priced substantially lower than non-distressed homes. Most sources suggest that home prices will decline in the coming year.
Barring some change in the labor market or a drastic increase in household formation, its going to take quite some time for the housing market to recover.
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