Pent Up Housing Demand in Pictures

Professor Depew was talking about "pent up demand" for housing in Monday's Five Things.

Lawrence Yun, chief economist for the NAR, said he believes existing home sales will gradually rise over the next year as "pent up demand" is unleashed.

In the meantime, while Mr. Yun awaits the unleashing of "pent up demand," we'll continue to follow the "pent up supply" of housing that is being relentlessly unleashed.

Existing Home Inventory



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I happen to have some other pictures showing "pent up demand" to add to the collection.

Home Ownership 1900-2007



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Inquiring minds noticing the huge pent up demand depicted by the above chart are no doubt asking "Pent up demand at what price?" That's a good question too. I think some clues are in the following chart.

House Price To Rental Ratio



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Prior to things going completely insane in 2002, the last peak in house price to rental ratios was in 1980-1982 when mortgage rates were near 15%, Fed rates near 18% and inflation running rampant. Never before in history has it been so cheap to rent relative to own.

The above charts courtesy of the Wall Street Journal article U.S. Mortgage Crisis Rivals S&L Meltdown.

Robert Shiller, a Yale University economist who has made a career out of studying bubbles, says the last bear market in stocks may have also made houses more appealing. A 2003 survey of home buyers he conducted with a colleague found 10 times as many said the stock market's collapse encouraged them to buy a home as said it discouraged them. Their thinking, Mr. Shiller says, went like this: "I'm fed up with the stock market, I had so many promises of high returns and my broker and the accountants were deceiving us. But homes have always gone up in value, and it gives me great satisfaction to own a home and I can see it everyday."

But after years of living off the debt-financed increases in the value of their homes, U.S. consumers are in uncharted territory. "A lot of people, including me, have been saying that the country has been spending more than it's been producing, and that will have to come to an end," says Mr. Volcker. "The question is: Does it come to an end with a bang or whimper?"

Calculated Risk always puts out interesting housing charts so let's take a look at housing inventory in terms of months supply.

Existing Homes: Month's Supply



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In When will Housing Bottom? I presented this look on Pent Up Demand.

New Single Family Home Sales



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Housing Starts 1959 - Present



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In Housing - The Worst Is Yet To Come I presented the following chart courtesy of Credit Suisse that seems pertinent to the discussion.

Monthly Mortgage Rate Resets 2007-2015


Subprime resets peak in 2008 but Alt-A and Pay Option ARM problems which are just as big if not bigger do not peak until 2011. The problem with foreclosures has really just started. Looking at the above chart perhaps we get a bounce in 2009 before the final collapse heading into 2012.

Perhaps by then home prices will be back at more realistic levels. Here is the irony of the situation: For all the talk about affordable housing, most of the affordable housing hypocrites do not really want prices to fall.

In the meantime, if anyone starts yapping about "pent up housing demand" please show them the above charts.

Comments

[overn]

nowhere is this more clear when listening to buyers/sellers/realtor... follow this line of thinking than in Naples where few have mortages..what a surprise when the rubber meets the road.

[User 103217]

User 59794, please expound upon your comment regarding Naples. My wife andI are interested in a condo on the water in Naples. How does this argument play out in situations like this, where there is limited supply of waterfront units and more affluent owners, who canwait out the storm?

[rwf]

One of the current problems is inventory (new houses on the market). The millions of people who make a living selling to builders are close to being out of work (no building). The construction people (mostly illegals) who do the manual labor will be out of work as building grinds to a halt. Buyers who, in the past, upgraded to these new homes by making money on their current homes, cannot sell the house they are in. Potential buyers of these resales are equity poor, having taking out so many additional mortgages to buy toys with that there is nothing left to tap. Add to this the ARM's coming to call, balloon payments, and the fact that many of these owners might be out of work now or soon in the coming recession, and home values go straight down. There is no market. As a building supply executive, I can tell you that this will last for another 5 years, and even then, when homes begin to sell, they will be valued at up to 50% less what they could have fetched 2 years ago. Regional? Sure. For now. We aint seen nothing yet. Believe me, if real estate is the bulk of your net worth, you are not going to like the slope of the graph that measures it as we go forward.

[naples]

for the poster who is interested in FL waterfront condo. i am also in the mkt but how you buy is really base on market rent. the cost of owning (interest cost like mtg rate on entire purchase price even if you pay cash+ property tax+HOA+others) must be lower than mkt rent. right now FL has a ways to go. this goes for any property in FL or elsewhere. if they had use this as the underwriting criteria then there would not be any mess at all

as for the prior poster about line of thought naples, its the same old thought in FL across the board. speak no evil hear no evil but certainly keep up the line that there is demand out there and try to con your neighbors into NOT lowing the list price. dont fall for it.

hallandale beach fl oceanfront 800 sq ft sold 350K in 2005 under contract at 200K now

clearwater beach fl 1400 sq ft waterfront condo list 289K foreclosure now offered $210K ...no bidder except for me at 153K ( and i think i overbid by 30K)

use mkt rent to set your purchase price

[naples]

one other note: i sold florida waterfront in Jan 2006. listed november 2005. the comments i got from neighbors:

"you will be sorry for selling"
"you can get 10% higher"

30 showings and 2 bids -- contract Jan. first buyer couldn't close as underwriters began to tighten stds. another contract in mar with second buyer but i had to pay have the title insurance. closed april.

now lists are 30% lower than where i sold. i sold at 2.5x market rent (the person who bought is paying 2.5x what she could have rented the place)

keep in mind the environment, lenders are not lending for condos that are not heavily owner occupied. they want higher equity now too. insurance and taxes are higher. this all means DON'T expect prices to run away. its got a ways to go before it approaches market rent.