Additional Comments on the Housing Market

A short article in the WSJ gives an interesting perspective on the housing market. Text in bold is my emphasis.

It is no longer worth debating whether the housing market is getting worse. The more important question is how much worse it will get.

With financial firms racking up more mortgage-related losses -- yesterday it was Swiss Reinsurance with an $876 million write-down -- would-be home buyers are going to have a hard time getting loans. Ratings downgrades on some mortgage-backed securities mean some institutions simply don't have the mandate to buy them. Even when the smoke clears, those buyers won't come back.

Yesterday, the National Association of Home Builders said its measure of builder confidence remained at record lows in November. Expect more bad news today. Economists polled by Dow Jones Newswires estimate builders broke ground on new homes in October at an annualized rate of 1.18 million units, down 49% from the peak early last year.

These housing-starts numbers are notoriously volatile. It is possible the actual October figures will bounce instead. If the past is any guide, they could fall much further. Starts saw three peak-to-trough declines of more than 60% in the 1970s, 1980s and 1990s.

Today, an unprecedented number of houses don't have anyone living in them. According to the Census Bureau, 2.7% of U.S. homeowner inventory (which excludes rentals, vacation homes and homes that are sold and awaiting occupancy) is vacant and for sale. Before last year, that figure had never been higher than 1.9%. Just to get the vacancy level back to that point, the market needs to absorb more than 500,000 empty homes.

Maybe home builders should knock off work until spring.