Massive Overhang of Existing Homes Putting Downward Pressure on U.S. Home Prices and Demand; It Will Take 5 Years of Positive Household Formations to Absorb the 2.5M Excess, According to Forest Economic Advisors

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Industry Intelligence Inc.

Jun 16, 2011, 06:00 ET

LOS ANGELES, June 16, 2011 /PRNewswire/ -- A massive inventory of existing homes is dampening the recovery in the U.S. housing sector according to Brendan Lowney, macroeconomist with Forest Economic Advisors (FEA). Lowney estimates excess home inventories at 2.5 million. He says that this oversupply has put downward pressure on home prices, which in turn has caused a variety of undesirable effects, such as pushing more houses "under water" – the term for when a home's value falls below its existing mortgage balance. This negative worth causes even more defaults, thereby increasing the oversupply.

Using U.S. Census vacancy data and housing occupation trends, Lowney states his estimate of the housing overhang sheds light on when the housing market will recover. It will take a gradual rebuilding of new home inventories and an average of 1.3 million household formations per year for five years before a significant portion of the 2.5 million excess home inventory can be cleared.

It will take several years to absorb existing home inventory

(All numbers in thousands)

Housing

starts

Home

removals

Change in new

home inventory

Household

formations

Change in existing

home inventory

2011

580

300

20

600

-340

2012

775

300

80

1,100

-705

2013

1,150

300

100

1,300

-550

2014

1,570

300

130

1,600

-460

2015

1,870

300

150

1,900

-480






Cumulative

5,945

1,500

480

6,500

-2,535

Lowney will share his insights on the housing recovery with participants in a teleconference call sponsored by Industry Intelligence. The call, which will include the opportunity for questions and answers, is scheduled on June 23, 2011 at 2:00 PM EDT/18:00 GMT. Pre-registration is required. Participation is free and limited to the first 400 callers. Please visit www.industryintel.com/iiLive to reserve your seat.

A principal with Forest Economic Advisors, Brendan Lowney is an expert in international economics with more than 16 years of experience as an advisor to North American companies.

This event is sponsored by Industry Intelligence Inc. A transcript will be available on Industry Intelligence i2dashboard service. For a free trial to our services, please visit http://www.industryintel.com

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