Monday, May 30, 2011

The Excess Vacant Housing Supply

by Bill McBride on 5/30/2011 09:45:00 PM

Last week economist Tom Lawler looked at the national excess vacant housing supply by using the Census 2010 data and comparing to the 2000 and 1990 census data.

I've been looking at the same data, but on a state by state basis. As Tom noted, trying to determine the excess supply as of April 1, 2010 requires an estimate of the normal vacancy rates. Some states always have high vacancy rates on April 1st because of the large number of second homes - like Maine - so what we need to do is compare the 2010 state vacancy rates to the previous census vacancy rates.

But we also have to remember what was happening in 1990 and 2000. There was a regional housing bubble in California, Arizona and several other states in the late '80s, and the 2000 Census happened at the end of stock bubble when the demand for housing was strong (so the excess vacant inventory was probably below normal).

So calculating excess inventory by comparing to the 2000 Census probably gives a number that is too high - and comparing to the 1990 Census gives a number that is too low. So, like Lawler, I also calculated an excess supply based on a combination of the 1990 and 2000 data.

A few notes:
• For those interested, here is the spreadsheet (with the 1990, 2000, and 2010 data and some calculations).

• Just because a state appears to have no vacant excess inventory doesn't mean there isn't any inventory - this calculation is based on an estimate of a normal level of inventory.

• Remember that this is for April 1, 2010. The builders have a completed a record low number of housing units over the last 14 months, and the excess supply is probably lower now.

• House prices depend on local supply and demand - and also on the number of distressed homes on the market (forced sellers). But the excess vacant inventory is important for forecasting when new construction will increase - assuming the builders can compete with all the distressed homes on the market (that story yesterday on San Diego was interesting).

The columns are sortable in the following table. My guess is the excess inventory was above 1.8 million on April 1, 2010, and that the excess is probably several hundred thousand units lower now. Tom Lawler thought the excess was in the 1.6 to 1.7 million range on April 1, 2010, and is probably in the 1.2 to 1.4 million range now.

It is no surprise that Florida has the largest number of excess vacant units and that Nevada has the largest percentage of excess vacant units. What might be a surprise to some is that California is below the U.S. average.



Weekend ...
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