Cutting through the fog to clearly understand the housing crisis

Summary:  the housing crisis can only dimly be seen through the fog of disinformation.  Much of which comes from the desperate real estate industry.  Their heavily spun news gets eagerly accepted because we love housing — and want to believe the happy days will soon return.

  1. Sales of existing housing measure turnover.  Up or down tells us nothing about the health of the housing market or the direction of housing prices — and means nothing to the economy.  High volume and rising prices shows a bullish market.  High volume and falling prices shows a bear market.
  2. Sales of new homes tells us little.  It weakly forecasts new home construction, which is a moderately important factor for the national economy (but new permits does so better).  Almost every new home built gets sold, eventually.
  3. Rising new home starts makes the housing crisis worse, since some of these get built in areas with excess vacancies — absorbing demand that would otherwise fill older houses.
  4. The number of homes listed for sale is not the “inventory”.  Almost all those sellers will move into another housing unit.   The inventory of homes consists of vacant homes, reported quarterly by the Census as Table Four.  The total commonly reported is vacant for sale and for rent, now 6.4 million units.  This ignores the millions of other vacant units, esp the 7.1 million “held off market.”  A total of 19 million housing units (not just homes) are vacant, as of the first quarter of 2010,.  That’s 14% of the total 131 million units.
  5. Eventually many of 19 million vacant units will be destroyed, either by the owners, the local government, or vandals.  The remainder will take years to be absorbed, although housing shortages will develop in areas with net in-migration.  This will probably break America’s love of real estate speculation — our national get rich quick scheme — an affair that began with the first european settlers.  We’ll have to just work for a living, like everybody else.

Other posts about the housing crisis

  1. Diagnosing the eagle, chapter I — the housing bust, 6 December 2007
  2. “Idiots Fiddle While Rome Burns” – comforting and facile rhetoric, 24 July 2008
  3. A must-read for every American citizen: “The Fannie Mae Gang”, 25 July 2008
  4. A vital but widely misunderstood aspect of our financial crisis, 18 September 2008 — Too many homes.
  5. Knocking down houses in order to save the village, 20 October 2008
  6. Destroying houses in order to boost home prices, 16 December 2008
  7. The housing crisis allows America to look in the mirror. What do we see?, 9 March 2009
  8. Another step to solving the housing crisis: downsize cities by destroying neighborhoods, 2 April 2009
  9. Sparks of justice still live in America – cherish them and perhaps they’ll spread, 11 September 2009 — About foreclosures.
  10. Has the US financial system been nationalized?, 28 October 2009
  11. Who should we blame for the mortgage crisis?, 16 January 2010

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