Via Calculated Risk, Tom Lawler on the housing stock
Total housing production in 2011 should fall south of 600,000 units, compared to the 2.092 million housing units that came on line in 2006.
Sadly, there are no good, timely data on the likely number of housing units that will be lost to various factors (demolition, conversions, disaster, etc.). The Census 2010 data suggested that the annual “scrappage” rate was substantially lower than other Census data had suggested last decade, though that could well have been related to the housing boom years, with higher conversions or units added from non-residential use than various surveys (based on relatively small samples) suggested. Anecdotal evidence suggests that scrappage rates of late would not be that low, and a conservative estimate for 2011 would be in the 250,000 range – implying growth in the housing stock for the calendar year of under 350,000 units.
Note that up until recently – note completely sure on his current stance – Lawler has been more pessimistic about housing than I have been. He leans heavily on vacancy rates, while I’ve tended to look more a demographics.
Yet, now all the stats are beginning to align. In a way this is like 2005 all over again. In late 2004 there were a number of people from the outside who started to grumble about the unsustainability of housing prices. There also were those who told stories about how this time was different.
And, let me be honest. Many of those stories were compelling. I continued maintained that the price bubble would eventually pop but I count that as more an act of luck than insight. I don’t want to relitigate that battle but I will say the soft landing people did not have a ridiculous case.
Now the same thing is happening in housing supply. There were those of us last year looking around and saying – this is just not sustainable. Yet, people told stories about vacancy rates and getting the rot out that were compelling. Lots of people said we are not going to see booming construction for a long time and seemed to feel the fundamentals backed that up.
Yet, over the beginning of 2011 lots of data series have started to turn in the same direction. We are seeing growing consensus that this is simply not sustainable and something is going to have to give.
Moreover, just like a price bubble, this housing shortage is a growing phenomenon. The longer it goes unaddressed the bigger the correct will be. And, quite frankly there is no reason to think actual housing supply will begin to tick up in the next 12 months. The lead time on home building is just too long.
So we are probably looking at 2 years minimum before we get a significant reduction in pressure. All the while shadow households are still forming. Couples are still getting married or waiting to get married. Babies are still being born, etc.
When housing corrects, I have to guess that it will correct hard.