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New Home Sales Forecast
Here is a long run look at population divided by number of annual home sales. From 1963 to 1995, there was a mean of 383.27 people in the US population per each new home built. Starting in 1995, the number dropped from 394 people per home to a record 229 people per home in 2005 (the building peak).
Assuming this population per production # is mean reverting, and the extra new housing supply was borrowed from future demand, it can be easily forecasted how much was overbuilt starting in 1996 and how long it will take for long run oversupply to return back to zero. This model establishes that new housing sales continue at the 2010 current average rate of 322K/year, and the US population grows 3 million people per year going forward. A netting out of long run oversupply does not occur until 2013. After 2013, new home sales should run at population divided by 383.27, assuming long run averages hold, or approximately 840K builds and sales per year at 2014.
These numbers generally concur with the yield curve forecasting a meaningful recovery starting in 2013-2014, as housing supply returns to long run balance.
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Yup. This is why I have a -9% for residential home prices this year in Shiller's forward survey. And I may be too conservative.
Chris
I don't see how the headline "1.4 million homes need to be taken off the market for at least 5yrs" matches the body of the story which calls for a resolution of the problem in 2013 at current sales rates. Please clearify.
Given this analysis, the current surplus for 2010 is around 1.4m homes. Taking that surplus off the market for a long enough time gets us back to historic mean population to supply ratios.
CD, the 'foreign country of 7 million' you want to adopt is right here in the US! Give every illegal a green card AND a house. TWO problems solved! The houses would start generating taxes as would the occupants... A winwin for everyone. Where do "I" send my bill?!
Although, before I announced 'the plan', I'd recall a good deal of the Armed Forces to stand along the southern border... Just sayin, legalization AND title to a property WOULD be a reason for quite a wave. Other than that, I think it's a great idea (sarcasm off?/oh, did I leave it on, again?!)
How about an alternative method. Half of those who are foreclosed this year should just burn the place down when they leave. That ought to just about even things out, both numerically and karmically.
Something like that may be in the offing. An empty house just sort of rots for lack of RenChi (Lit. 'People Energy' in Mandarin). The TBTF banks that own all this RRE may raze a number of them - after getting a hefty writeoff of course. Most new houses are made of inferior materials which will fall apart soon. Can you tell I just bought a house?
I'll agree, but costs of construction, costs of borrowing, etc., are irrelevant to we potential buyers.
Just because THEY, in constructing these new homes, paid too much incurs no obligation on the part of potential buyers to pay more to cover these overpayments.
This reminds me of the guy who commented on another blog to the effect that small business SHOULD be hiring now, for this- or that- reason... The blogger responded that business will hire when business feels able financially to hire, and not before. Similarly, I'll look to buy a house when prices, my income, and my costs make it sensible to do so...nothing else matters.
And you certainly won't see even higher prices for YEARS, if not decades. Any argument that a rise in DEMAND in itself will help prop up prices is positively KEYNESIAN, and thus patent nonsense. It takes both buyer AND seller to agree to make a deal.
Too, with credit availability now generally more restricted, the buyer (who likely has a better cash position now than three or four years ago) can afford to wait. The often-leveraged seller will get progressively squeezed as time goes by...
+1000
How about compairing new homes built to the CHANGE in population of the 30 to 80 yr old age group?
"1.4 million homes need to be taken off the market"
Simple solution: the govt holds a lotto for 1.4 million homes. Sell tickets for $1, viola. 1.4 million homes off the market.
Then the "winner" will have 1.4 million new tax bills.
AMERICAN DREAM
http://williambanzai7.blogspot.com/2010/08/american-dream-redux.html
Where's my bailout?
then why aren't they affordable? what I mean is why are they so high compared to the cost of labor?
http://covert2.wordpress.com
actually, homes in many areas are already discounted to rebuild costs. price stickiness in wage markets has definitely helped that case, but materials costs certainly haven't fallen to zero either.
The whole premise of this article is ridiculous. There's no such thing as a housing "oversupply": there's only OVERPRICING.
The market will clear at a price agreed to by both buyers and sellers.
Obviously in a literal sense you're right. The question then, is how much does the marginal utility of houses decline? I.e. how much less is the second house worth than the first (absent bubble blowing Feds)?
It could turn out that prices need to decline by 80% to clear.
Incidentally, I don't think markets that get this far from the mean will go back just to the mean and stop. I would expect we overshoot in the other direction. Put this another way, if by 2013 housing prices have been falling for 7 years that will do so much damage to the very concept of home ownership that the market isn't going to snap back to the state it was in during 1996.
It is a relative oversupply at a given price (dictated by production costs). These charts point to a force for leftward shifting supply curve holding everything else constant, as time passes to 2014.
In a sense, you're right, but then realize overpriced housing inventories on the market are really not legitimate supply (because they won't clear). You have to remove all overpriced optimistic move-up and non-liquidation supply from the total market inventories to get a better sense of what will actually bring price down.
Of course, demand is depressed (for three reasons: employment, removal of govt incentives that carried forward future demand, and self-reinforcing fears of falling prices) on top of the bumped up supply (a supply curve moved rightward). Both of those conditions won't last forever. That's the idea here. A future leftward shifted supply curve with demand remaining the same (unlikely unless employment worsens significantly, as we're already in an especially depressed demand period) means higher prices, holding everything else constant.
and lenders
Won't need lenders if the price is low enough. I'd be glad to move into a McMansion for around $1000 cash!
It's different this time.
Yep, really different this time.
Hard to buy a house when you don't have a job. Apparently, that's become a bit of a sticking point with lenders. Almost as if they're expecting to get their money back. This time.
Yeah! They can't make up their minds, if they have one. In 2005/6 it seemed that if you had a heartbeat, you could qualify for a $500,000 loan on a house worth $350,000.
By the way, when they publish the new home sales they usually also publish the building permit number. What was the new building permit number?
just burn 'em and let them get the insurance.. but of course make a million sidebets and securitizations before hand so it al needs to be bailed out ten fold
more likely to go the way of detroit and just bulldoze...
<<insert witty observation here>>
The solution is blindingly simple. Let's adopt a foreign country with a population of around 7 million and move the entire population lock, stock and barrel to America. Assuming 5 people per family, that should work out to around 1.4 million families to fill those 1.4 million homes.
Bingo, the economic Ponzi is up on its feet again and off to the races. Now where do I send the bill?
Better solution, which will put more people to work: EXPORT the houses to Afghanistan. They get to move out of caves, shipping and house moving become "Growth" industries, everybody wins!
Make it Chinese families, with 1.0 children per family, and we only have to import 4.2 million Chinese. I think the Long Beach facilities could accomodate the influx in about six months - too late for November 2010, but as I recall the previous Dem administration to take a year-two drubbing bounced back by year four with help from the Chinese. And I'm not using a closing tag here.
Brillant! There is creative problem solving - Pure Genius as usual CD - (must admit I laughed out loud as well) as for the sending the bill - here is a proposal - I say contact Lloyd @ Goldman Sachs - He can call the deal 'Timber Home' & market the 'sh*tty' deal to Spain as I understand there Social Security Trust Fund is being used as a dumping ground for highly questionable paper - BTW - great post scriabinop23
Great, now how am I supposed to pay for my Cadillac Asscalade with blinging dubs, a speedboat and the wife's cosmetic surgery if I can't depend on ever-increasing real estate values?