a nugget from the National Association of Realtors

Musings from an armchair housing economist……

All housing markets are local, but the fact of the matter is the US market needs to get healthier for the economy to fully recover. And while the housing situation is improving in some respects–price declines are slowing and new residential construction is on the upswing–it has a long way to go.

The National Association of Realtors (NAR) posted their 2012 economic forecast today (here). Much of it is in line with others’ expectations–the size of the economy will grow at a slow, but increasing pace; unemployment will decline; job growth will pick up; etc.

But it is interesting to look at two slides about housing that have important ramifications. The first slide is “visible inventory,” which is the unsold housing (new and existing) on the market. This increases as either a) more people put their homes on the market (perhaps expecting to make a good profit–see 2005), or b) the demand for housing decreases (see 2006+). Lately, we see visible inventory is still high, but declining. This gives some suggestions that the market is moving back to equilibrium, and prices might start moving up again.

But the second slide on supply is really interesting. Here NAR describes the “shadow inventory” (Seriously delinquent mortgage + homes in foreclosure process). These are houses that are not currently on the active market, but very well could be (think of it as pent up supply). As the chart shows, this number is declining, but well above where it was before the housing market crash. While not officially on the market, in many instances shadow inventory effectively counts (they could be on the market any day).

The upshot? Until all of this inventory overhang clears, prices will likely remain stagnant, new building relatively rare, and the housing market far from where it needs to be.


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