It’s is going to take two more years for the excess amount of homes in the U.S. to be sold off, according to Deutsche Bank economists Joseph LaVorgna and Brett Ryan.
Their comments go a long way towards explaining this morning’s incredibly weak existing homes sales report, and don’t make the future look particularly bright.
From Joseph LaVorgna and Brett Ryan:
Beginning with the February housing data, residential investment remains extremely depressed—at a historically low 2.2% of GDP as of Q4 2010. The magnitude of the collapse far surpassed any previous downturn as housing had never declined to less than 3.2% of GDP (1982). Moreover, housing’s share of nominal GDP averaged approximately 4.7% from 1947 through 2000. At the same time, the inventory of new homes now stands at 190k—almost one-third of the prior peak. To be sure, we do not expect residential investment to accelerate back to 6% of GDP in the near-future. We have calculated that it will take approximately two years to work off the excess inventory of distressed existing homes before vacancy rates return to their long-term equilibrium.
One positive: LaVorgna and Ryan think that so long as the economy keeps improving and employment numbers improve, demand for homes should increase and new construction may kick off again.
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