A Two-Parter from Bloomberg (Hat tip Chi!):
The collapse in housing and the 33 percent plunge in house prices since 2006 are favoring renting over homeownership. This trend will dominate the housing market for the next four or five years, and put additional pressure on a weak economy.
Policy makers in Washington continue to have a soft spot for homeownership. Many recent government actions can be viewed as attempts to keep people in their homes, even owners who clearly can’t afford them. In addition to specific plans such as the Home Affordable Modification Program, or HAMP, and the Home Affordable Refinance Program, or HARP, the Obama administration is trying to revive the moribund housing sector by encouraging mortgage lenders and servicers to refinance loans at lower rates.
In making my case for continued housing weakness, I’ve emphasized the negative effect of excess inventories on house sales, prices, new construction and just about every other aspect of residential real estate.
In housing, as in every goods-producing sector, excess inventories are the mortal enemy of prices. Lower prices are needed to unload surplus inventory, yet they also lead to the creation of more inventory by anxious sellers. The plight of house sellers and the reluctance of buyers are made worse by the realization that house prices can fall, and are falling for the first time in 70 years.
There are about 2 million excess housing units in the U.S., over and above normal inventory working levels. Before the housing collapse began in 2006, housing starts and completions were volatile but averaged about 1.5 million per year. So a 2 million excess is much more than the previous annual average build.
Furthermore, that excess is rising as homeownership declines as a result of foreclosures, unemployment, inability to meet mortgage standards or reluctance to own a depreciating asset.