by Afferent Input
I was checking out a recent economic working paper from BIS entitled “The housing meltdown: Why did it happen in the United States?” written by Luci Ellis (h/t Alea). She argues that the recent housing boom and bust was especially bad in the US compared to other countries. It’s an interesting read.
One of the major points that she argues is that much of the boom (and subsequent bust) is being fueled by an unprecedented housing glut. This is one of the figures from the Ellis paper illustrating this fact:
The data illustrated here go all the way back to 1956, and for most of the timeline does not crest 1.75%. Once the recent bubble burst in 2006, the vacancy rate essentially doubled from the historical average to nearly 3% in a mere two years.
Another measure of inventory is months of supply (MOS), which is how long it would take for current inventory of homes for sale to be sold at the current rate for which people are buying homes. Calculated Risk has been keeping track of MOS for some time, and he wrote a post all the way back in May looking at historical changes in MOS. This figure illustrates MOS since 1982, the last major housing crisis in the US:
Compare the two figures that I’ve posted here. Notice anything different between the two? In 1982, MOS was even higher than it is now. Yet, there was no major spike in vacancy rates at that time. Real estate did very poorly in the years following that crisis. Given the fact that much of the housing inventory today is no doubt being driven by an unprecedented glut of empty homes, there will be that much more added pressure driving down housing prices. Supply and demand and all that…
And, of course, with declining home prices comes declining home equity…