Cutting Through the Fog to Clearly Understand the Housing Crisis

Summary:  the housing crisis can only dimly be seen through the fog of disinformation.  Much of which comes from the desperate real estate industry.  Their heavily spun news gets eagerly accepted because we love housing — and want to believe the happy days will soon return.

  1. Sales of existing housing measure turnover.  Up or down tells us nothing about the health of the housing market or the direction of housing prices — and means nothing to the economy.  High volume and rising prices shows a bullish market.  High volume and falling prices shows a bear market.
  2. Sales of new homes tells us little.  It weakly forecasts new home construction, which is a moderately important factor for the national economy.
  3. Rising new home starts probably makes the housing crisis worse, since some of these get built in areas with excess vacancies — absorbing demand that would otherwise fill older houses.
  4. The number of homes listed for sale is not the “inventory”.  Almost all those sellers will move into another housing unit.   The inventory of homes consists of vacant homes, reported quarterly by the Census as Table Four.  The total commonly reported is vacant for sale and for rent, now 6.4 million units.  This ignores the millions of other vacant units, esp the 7.1 million “held off market.”  A total of 19 million housing units (not just homes) are vacant, as of the first quarter of 2010,.  That’s 14% of the total 131 million units.
  5. Eventually many of 19 million vacant units will be destroyed, either by the owners, the local government, or vandals.  The remainder will take years to be absorbed, although housing shortages will develop in areas with net in-migration.  This will probably break America’s love of real estate speculation — our national get rich quick scheme — an affair that began with the first european settlers.  We’ll have to just work for a living, like everybody else.

Originally published at Fabius Maximus and reproduced here with the author’s permission.