David Crowe

Chief Economist 


Washington, D.C.

Anje Jager/agencyrush.com David Crowe Chief Economist NAHB Washington, D.C. dcrowe@nahb.com

The housing market suffers from too much supply and not enough demand. Both sides of the market are out of balance: demand in the form of current homeowners waiting to trade up or down and future homeowners or renters still living in mom’s basement. Both groups wait in the shadows unwilling to pull the trigger. Excess supply in the form of foreclosures, distressed sales, vacant homes, and a very small number of newly built homes awaits that demand. A push at both ends could begin to solve the stalemate.

Increasing demand requires improving buyers’ attitudes, which turn on expectations about the economy, job security, house-price movements, and credit availability. The NAHB estimates two million households did not form over the recession that would have otherwise been expected from normal aging of the population. Each year, at least another one million households should form given the underlying age structure of the population. But, until those potential households feel comfortable moving forward, the demand remains in the shadows.

Reducing supply started with reducing home construction but that has not stopped the flow of foreclosures. New supply has dipped to its lowest level in the nearly 50 years of available data. The number of completed new homes for sale and ready for occupancy has dipped to 60,000, about the number of annual new-home sales in Atlanta in a normal year.

Vacant existing homes drive down prices because they are often in poor condition and the owner is desperate to sell. The latest Census Bureau figures report 14 million vacant year-round homes, up from 11 million in 2003. But, many are vacant for specific purposes that don’t depress prices. For instance, 2.3 million are held for occasional use as second homes. Nearly 6 million are being actively marketed for sale or for rent, which is up from almost 5 million in 2003. The most likely category of the shadow inventory of homes not on the market but waiting is a group labeled “other.” There are 3.8 million homes in this category, up from 2.5 million in 2003.

The one million excess vacant homes on the market are keeping prices from rising, and the 1.3 million excess shadow inventory is waiting in the wings to continue the depressive effect. But that is not all. The National Association of Realtors reports 3.6 million single-family homes and condos on the market, up from 2.3 million in 2003. Some of the 1.3 million excess are likely accounted for in the vacant for-sale inventory but some are additional homeowners still living in their homes but desiring a move.

Finally, the Mortgage Bankers Association reports 2 million mortgages in foreclosure compared to one-half million in 2003, which also has some overlap with vacant homes held off the market and homes for sale. The excess inventory over 2003 is somewhere between 3 and 5 million depending upon how many are in more than one of the three groups described.

There is some good news within these gross estimates. The share of the rental stock that is vacant and for rent has been declining steadily and now stands at 2003 levels. Rental vacancies are just over 9 percent, down from a peak of over 11 percent in 2009, but still above the 50-year average of 6.8 percent. Vacancies in buildings with five or more units have fallen over 3 percentage points since 2009. The NAHB Multifamily Vacancy Index also indicates continued improvement.

Homeowner vacancies, on the other hand, have not shown the same degree of improvement. Currently, 2.5 percent of owner-intended homes are vacant and for sale, down slightly from a peak of 2.9 percent in late 2008. Vacancy rates are even higher in more recently built homes, adding to the competition home builders already face.

Curing the housing market depression will require movement from both sides. Consumers need to see more economic growth to feel comfortable buying, and owners will need to get realistic about current values.