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

R. Mitchell — Thu, 16 Jun 2011 14:24:15 +0000

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

Conservative Daily News » Forest Economic Advisors

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