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Massive Overhang of Existing Homes Putting Downward Pressure on U.S. Home Prices and Demand

LOS ANGELES, June 16, 2011 /PRNewswire/ — A massive inventory of existing homes is dampening the recovery in the U.S. housing sector according to Brendan Lowney, macroeconomist with Forest Economic Advisors (FEA). Lowney estimates excess home inventories at 2.5 million. 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 houses “under water” – the term for when a home’s value falls below its existing mortgage balance. This negative worth causes even more defaults, thereby 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

 

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