New Home Sales May Be Poised to Rise

THE boom in housing in the middle of the last decade created a huge oversupply of homes in the United States. But now that oversupply appears to be close to vanishing, at least in most parts of the country.

Working off a housing oversupply

That reduction of supply does not in itself guarantee a revival for the depressed homebuilding industry, but it does remove one obstacle.

Historically, there was a loose relationship between the population over 16 years of age and the number of new homes sold each year, with an average of 376 homes sold for every 100,000 people from 1963 though 1996. The rate fluctuated with the economy, of course, falling during recessions and when interest rates were high, and rising when the economy recovered or interest rates were declining. But the booms were mild compared with the one that came in the middle of the last decade. Then, when the credit crisis and recession arrived, homebuilding collapsed.

Combining the boom and the bust, new-home sales have actually adhered to the historical average. From 1997 through March of this year, the average rate was 375 homes sold per 100,000 people. But, during the boom from 1997 until 2007, 1.8 million more new homes were sold than would have been expected under the historic average. Since 2007, two million fewer homes have been sold than would have been expected.

That calculation would seem to indicate that there is no longer a large overhang of available new homes for sale. That is confirmed by government figures indicating that at the end of March, there were only 144,000 new homes for sale, the lowest level since the government began collecting data in 1963. Of those, 48,000 had been finished, with the rest either planned or under construction. In early 2008, 199,000 finished homes were for sale.

The supply has not been exhausted in all areas, of course. Areas where speculation was most intense, like Las Vegas, still may have too many homes available for sale.

A low supply of new homes does not, by itself, affect demand, and there are reasons demand remains subdued. Many new homes are historically sold to homeowners moving up. Those homeowners need buyers for their existing homes, and they may be hard to find now. In addition, many homeowners cannot trade up now because they owe more on their old homes than the houses are worth.

Other impediments to a significant rise in new-home sales include stringent credit standards for new mortgages and the psychological scars left from the collapse in home prices.

There are indications that fewer households have been formed in recent years than would have been expected from population growth. More young adults have stayed with their parents, while other people who lost their homes or jobs were forced to move in with relatives. If and when the economy improves, many of those people could seek housing of their own, creating a sudden increase in demand.

A major reason the recovery from the 2007-9 recession got off to a slow start was the lack of a contribution from the homebuilding industry. That may be changing. In the first quarter of this year, reported Friday, residential investment was estimated to have grown at an annual rate of 19 percent. The figure was up 8.8 percent from the same quarter a year ago, for the largest annual rise since 2004.

Similarly, while sales of new homes remain low by historic standards, the number of sales in the first quarter of this year was up 17 percent from the same period of 2011. That was also the best year-over-year gain since 2004.

The post New Home Sales May Be Poised to Rise appeared first on HowMany.org - Population growth and the Environment - How overpopulation affects the U.S. and the World.