Friday, December 17, 2010

Housing Starts and Vacant Units

by Bill McBride on 12/17/2010 01:36:00 PM

Here is an update to a graph showing total housing starts and the percent vacant housing units (owner and rental) in the U.S.

Over a year ago, I used this chart to argue that there would be no "V shaped" recovery, and that housing starts wouldn't rebound rapidly. See: Housing Starts and Vacant Units: No "V" Shaped Recovery. In that earlier post, I also argued that the unemployment rate would remain high throughout 2010. Hey, housing matters!

Note: Housing starts are through November, and the combined vacancy rate through Q3 based on the Census Bureau vacancy rates for owner occupied and rental housing.

Housing Starts and Vacant Housing Units Click on graph for larger image in new window.

The good news is the total vacancy rate has started to decline. We know that the homebuilders will complete a record low number of housing units in 2010, and the declining vacancy rate suggests more households are being formed than net housing units added to the housing stock, or in other words, the excess supply is being absorbed.

The bad news is there is a long way to go. In some areas there will probably be a pickup in building next year, but the recovery in construction will remain sluggish until more of the excess supply is absorbed.

Looking at the graph, the vacancy rate continued to climb even after housing starts fell off a cliff. Initially this was because of a significant number of completions. Then some hidden inventory (like some 2nd homes) probably became available for sale or for rent, and also some households doubled up because of tough economic times. As the economy improves, the people that doubled up will probably be forming households - and that will help absorb the excess supply. But it will take time.

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