Simple economics tells us that when supply exceeds demand prices suffer, just as we have seen in the housing market over the past three-plus years. A report by Brendan Lowney, a macroeconomist with Forest Economic Advisors (FEA) estimates that an excess home inventory of 2.5 million homes exist at this time. He says that this oversupply has put downward pressure on home prices, which in turn has caused a variety of undesirable effects, such as pushing more home owners “under water” which, in turn, causes even more defaults, thereby further increasing the oversupply.
Using U.S. Census vacancy data and housing occupation trends, Lowney states his estimate of the housing overhang sheds light on when the housing market will recover. It will take a gradual rebuilding of new home inventories and an average of 1.3 million household formations per year for five years before a significant portion of the 2.5 million excess home inventory can be cleared.
|
It will take several years to absorb existing home inventory (All numbers in thousands) |
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| Housing
starts |
Home
removals |
Change in new
home inventory |
Household
formations |
Change in existing
home inventory |
||
| 2011 | 580 | 300 | 20 | 600 | -340 | |
| 2012 | 775 | 300 | 80 | 1,100 | -705 | |
| 2013 | 1,150 | 300 | 100 | 1,300 | -550 | |
| 2014 | 1,570 | 300 | 130 | 1,600 | -460 | |
| 2015 | 1,870 | 300 | 150 | 1,900 | -480 | |
| Cumulative | 5,945 | 1,500 | 480 | 6,500 | -2,535 | |
Source: Forest Economic Advisors
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