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Excess supply an uninvited drag on housing recovery for years

Lake Las Vegas houseThe prevailing housing mess was for the most part caused by too many homes chasing too few buyers. That's a classic case - Economy 101 stuff on college campuses - of real estate supply and demand going their separate ways. A not just a tad, but by a mile, to put it mildly. Of course, easy mortgage money egged on the housing market to ever further heights that ultimately began defying gravity. Even that precarious stage lasted longer, despite a host of red flags being hoisted, than many real estate observers foresaw.

Moody's Investor Service recently reported that at the end of the second quarter there were an extra 1.8 million vacant homes idling on the vast real estate scene from the usual norm. An uptick from the first quarter's 1.7 million. Mortgage lenders are nowadays repossessing at an increasing pace property that homeowners could not get a modification for - like under HAMP or through their own home loan provider - and are being foreclosed on. Over the last 20 years vacant homes amounted on average to about 6% of the total housing inventory and now that number stands at 7.7%, Moody's continues.

As its own estimate for a better housing supply and demand alignment, Moody's believes an adequate balance will materialize by the end of 2012. Strict mortgage qualification criteria, thus far persistently high unemployment and less than stellar homebuyer credit background are issues that should improve by then, and help narrow the currently wide gap.

That may be true in areas where the real estate market experienced only mild blows, like kid gloves would do. Washington, D.C. metro fits well this picture. But regions that went through the tremendous housing acceleration and then a dizzying, G-force dive probably will take much longer to find a comfortable, workman-like balance. Las Vegas for sure heads the list in this category, and has uneasy company from many parts of California, Arizona and Florida. The notorious four.

One thing that would speed up the balancing process would be for home builders to curtail their current activity even more. For instance, they could cut in half the current production rate from whatever it is to quickly bring the supply side much closer to where demand is. This would pour new energy into the real estate market by propelling price appreciation and then also help boost the entire economy, jolting it out of the present lethargy. Washington has tried quite a few solutions to right the housing and mortgage markets and it ought to keep trying until it finds the real thing designed specifically for today's conditions. This might be worth taking a serious look at.

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Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst 

www.BluefoxToday.com - syndicated mortgage, housing and property management blog

eskokiuru@gmail.com
My cell: 702-499-1006

Comment balloon 8 commentsEsko Kiuru • September 04 2010 09:17PM
Excess supply an uninvited drag on housing recovery for years
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