The housing bubble and subsequent subprime mortgage debacle that jump started the recession seem like old news now. But if you thought the housing market was about to begin a recovery similar to what we’ve seen in the stock market since March 2009, the following information may surprise you.
Consider this detail from Gluskin Sheff economist David Rosenberg:
“not only are house prices still overvalued relative to wages and rents, but there is still far too much supply relative to the underlying demand, a message that has come out ringing loud and clear in each of the last two National Association of Home Builders surveys:
- There are two million U.S. homes sitting vacant with a “For Sale” sign.
- There are another 3.4 million homes that are vacant but are being “held off the market” for unspecified reasons. In other words, the “shadow” inventory of foreclosed units that has yet to be listed.
- There are an additional 3.5 million homes that are occupied but are listed for sale right now.
- We have 235,000 newly built units sitting vacant too.
- There are a record 4.6 million vacant rental units nationwide that are competing for all this outstanding supply of houses, and rents are deflating at a record rate, which is impeding the relative improvement in the costs of homeownership.
So we have supply, both potential and actual, of over nine million homes and condos nationwide. That is a huge overhang. On top of that, an 11%-plus rental vacancy rate as a viable option for households looking for a place to live. For some reason, this does not add up to anything but a long and winding road for continued house price depreciation going forward. There may be subprime areas of Florida, California, Nevada and Arizona that look very attractive, but the overall market also includes the Northeast and Midwest and the mid- to high-end part of the real estate space where deflation is going to remain a reality for years to come.”
