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Housing inventory graph

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The demand for homes is fairly fixed. It is simply the number of households which is based on demographics. In the US, the number of households slowly increases because of immigration and more people getting married and having kids than people dying and not needing a house any more. That is why the statistics about the sheer volume of excess housing at a time of still very inflated prices is so disturbing. This is the first graph I’ve seen that puts a dollar value on the extra housing units (on Big Picture):
Value of unsold homes

Some of the adjustment back to a normal level of inventory will simply be price adjustments. These losses will be taken by builders, homeowners and investors. The rest will come from all the houses that will NOT be built over the next few years as the slow but steady natural growth in households finally gets demand back in line with supply. This suggests a serious economic headwind over the next several years.

Five years out, things look much better. The excess inventory should be gone and the baby boomer’s kids start getting married and having kids. Until then though….

Topics: Economy, Home, Housing Bust, Real estate | No Comments »

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