May 06, 2007
Vacancy rate soars, millions of houses and apartments sit empty, inventory of unsold homes builds, and homebuilders keep adding fuel to the fire
Supply. Demand. Inventory. Prices.
Any questions? It's just Econ 101 folks, playing out to perfection.
From the Businomics blog:
Add together homeowner vacant and rental vacant and we've got a 1.5 million housing units vacant ABOVE NORMAL VACANCY RATES.
OK, what's normal annual demand for new housing? Counting population growth, vacation homes, demolitions and changes in family size, I peg demand at about 1.7 million units. I know that others have estimated demand at 1.6 or 1.8 million units, so let's be generous and use a high number like 1.8 million. Current housing starts are 1.5 million, plus another 0.1 of manufactured housing, so we're underbuilding by 0.2 million units a year now. At that pace, we work off the excess inventory in only 7.5 years.
I don't claim a high degree of precision in these estimates, but they are certainly in the ballpark. And they say quite decisively that the housing problem won't be over next year, or probably even the year after.
Business planning implications: Stay away from the housing construction supply chain. Look for price declines in markets that are relatively overbuilt and undergrowing.