During the boom, builders were supplying about 2 million new homes a year. But new households were only demanding about 1.2 million a year.
It’s easy to see how after a few years we have a huge glut of homes. Now, the problem never would have gotten as bad as it did without a few enablers along the way.
Those enablers were the speculators and the banks. Combining loose lending, low interest rates, no down payments, and people who can’t pay the money back is a bad idea. It created artificial demand, especially in areas like Arizona, California, Florida, and Nevada.
It was like a game of musical chairs… without any chairs. The music played for so long nobody thought it would ever stop. But when the music finally stopped, it wasn’t just one person getting hung out to dry. Everyone went down.
How do you correct the problem of excess homes? New housing starts must fall below the rate of household formations.
The builders have done their part and cut supply. In 2009, new housing starts hit their lowest pace in the 50 years it’s been tracked. Only 554,000 new housing starts were registered in 2009.
The problem is, as the economy tanked and jobs disappeared, new household creation disappeared too. New household creation dropped from an annual rate of 1.2 million to under 500,000 per year over the last three years.
It’s not as if these people just disappeared. They’re just acting rationally. If you can’t get a job, you’re not going to buy a house or rent an apartment for yourself. No, you’re going to bunk with family or friends until things improve. And that’s exactly what people are doing.
But what happens when the economy starts to pick up and jobs are available? Those same people bunking with family and friends are going to want a place of their own.
A tidal wave of pent up demand will start hitting the housing market. We could even see some areas swing to a housing shortage. And if the economic recovery keeps up its current pace, it will happen before the year is out.
No comments:
Post a Comment