Earlier this year, I spent some time sifting through historical household and housing data to develop a perspective on what “normal” demand for homes was. One conclusion of that analysis, concluded in May, was there was roughly 18 months of excess housing inventory in the market, and as that inventory was worked through, home prices and sales would stabilize, leading to a recovery in mid-2010.
Since then, the employment market has worsened, contributing to an increase in mortgage delinquencies and a continuing rise in foreclosures. The New York Times had a good overview of the state of the credit market today, explaining that the securitization market for mortgages has effectively dried up over the past year, and doesn’t show any signs of recovering without government intervention.
Observers point to the rising delinquencies as a looming after-shock for the housing market. John Burns suggests that close to 7 million homes that are currently delinquent on their mortgages will be foreclosed — “more than a one year supply of distressed sales poised to hit the market sometime in 2010 and 2011.” The introduction of this supply to the market, along with the elimination of government stimulus programs, will create a condition of tremendous oversupply and drive down home prices yet again.
Other experts, including Robert Shiller, believe that it is in bank’s economic interest to release distressed sales into the market in an orderly fashion, so as to improve their recovery value of the asset.
In Burns’ letter, he also includes an interesting chart that looks at homes sold as a percentage of total households from 1968 with a projection through 2013.
The median is just over 4.5%; for the past 12 years, the market has outperformed the median for the past 40 years. Compared to historical figures, our current rate of home sales is at about the mid-point for the population of households. There have been significant social changes over the past 40 years that would help to increase the percentage of home sales: an increase in single parent households, an explosion of housing stock, easier access to home financing.
However, when we look at the current volume of turnover in the real estate market, the most anomalous feature of is the pressure on pricing from foreclosures. The actual volume of sales is within a reasonable historic norm.
