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Excess Housing Inventory still as high as 5 Million Units

5/16/2012

 
Kevin Spires, CFA, FRM

With regrets to Winston Churchill, The Housing Market is a riddle, wrapped in a mystery, inside an enigma …  I say this about the Housing Market because the Housing Market will probably grow at compounded growth rates of 5-10% over the next decade despite Excess Inventory that was running between 3-5 Million Units at 12/31/2011.
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The take up of Excess Inventory has just begun, but the construction of new homes is so far below normal (Household Formation of 1.2 Million + .2 Million tear downs per year) that Home Construction has nowhere to go but up.  Follow the link above to read through 5 different scenarios for the recovery in Home Construction.  The one scenario I show that is truly absurd is the "no recovery for a decade" scenario.  Using the most pessimistic estimate of Excess Home Inventory, no growth in Home Construction will cause a massive and growing negative excess inventory to develop after 2016 and leave Home Construction at 56% below long term trend levels.  I actually think Home Construction will grow between 15-25% on average over the next two years and then slow its growth going forward.  2012 Housing Starts are running almost 25% ahead of 2011 and as long as interest rates are this low, Housing Affordability will cause Home Construction to grow at healthy rates..


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