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Notes to myself, possibly of interest to others.
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Tuesday, July 24, 2012

The really bad news about housing

Some pundits say that against a constant demand for housing of about 4.5M units per year, especially given that new home formations seem to be increasing, the visible supply of houses for sale at ~2.8M should be cleared out in by the end of 2012.  Others add the shadow inventory of ~10M houses, which pushes a recovery out 3 or so years.  But here is Mark Hanson, via Ritholtz:
In order to really de-lever the housing market something needs to be done about the 20 to 30 million homeowners in a negative or “effective” (lacking the equity to pay a Realtor 6% and put 20% down on a new house) negative equity position; with 2nd liens; and without the credit needed to qualify for a new vintage loan. That’s because repeat buyers are the “durable” demand cohort, not first-timer buyers and “investors” who come and go with the stimulus wind like we saw in 2010 and will again in the second half of this year.

Ritholtz then says:
Quite a few comments about Mark’s 25-40m ghost inventory. My back of the envelope calculations (data from Census):

131 million housing units, with an owner occupancy rate about 66.66%. About ~88 million homes, of which 30% or so — about 27 million — have no mortgages. Of the remaining ~60 million houses, if the general estimate of 20-25% are underwater is accurate, than its about 12-15 million homes.
This seems to be a calculation of what Hanson calls "Distressed Loans", not of any items in the Ghost Supply:
  • “Effective” negative equity (lacking the equity to pay a Realtor 6% and put 20% down on a new house)
  • Second liens
  • Impaired credit
This would make the numbers more scary.  In any case, Hanson's point that the "Durable Demand" part of the housing market looks extremely shaky is very well made.

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