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Industry expert says it will take five years to absorb existing home inventory

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)

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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