Real Estate Forecast 2013: The Housing Market
The housing market will improve moderately in 2013, but nobody will mistake this for a boom. The gains in activity and prices will be a welcome relief, but will leave many homeowners still underwater.
The usual way of discussing housing problems is misleading. Foreclosures, short sales, shadow inventory, upside-down mortgages are all symptoms. The fundamental problem that we have is an excess supply of housing units.
The normal housing vacancy rate for owned property (single family houses and condos not in the rental market) is around 1.5 percent nationally. Our high was three percent, but we are now down to 2.1 percent. Rental properties are normally about seven to eight percent vacant. (Local norms may be higher or lower.) We reached a peak of 11 percent rental vacancy a few years ago, but have improved to 8.6 percent in the latest observation. Despite recent gains, we still have too many houses for the current level of demand.
(Data note: these data are a little soft. They do not exactly match vacancy information from other sources, such as the decennial census. They should be taken as a general magnitude, not high fidelity information.)
The improvement we’ve seen recently results from a simple phenomenon: construction of new fewer housing units has been less than the growth of demand. Last year total units (single family houses plus the number of apartment units) ran just over 600,000. This year we’ll probably build about 750,000 units. At the peak of construction...