Housing Bust Recipe (Update)

I previously posted a chart of the housing units that were "for sale only" (and I updated that chart with a more appropriate title). That's what you generally see when a real estate agent shows you an empty house and you decide if you want it or not. Let's just say you wouldn't expect to see a renter there while you are taking the tour.



It turns out that the "for rent" section of the data also includes housing units for sale (housing units that people are trying to rent and/or sell). So the above chart shows that. This does not include the housing units that are "for sale only" though. Dizzying, huh?



And finally, this chart shows all the housing units that are for sale only or are for sale or for rent. The data would be so much cleaner, in my opinion, if the categories were "for sale", "for rent", and "for sale or rent", but hey, maybe that's just me. In any event, this chart shows all housing units that are for rent or for sale (and therefore vacant awaiting new occupants).

Let's start with the obvious again. There are exponential trend lines on these charts and there really shouldn't be. There's no way this can go to 100% someday unless financial Armageddon has struck. Here's a scary thought. These last charts start their climb up when interest rates peaked in 1980. Oh how we have embraced those declining interest rate tailwinds!

The last chart is probably the most noteworthy, since it represents all of the choices a renter could make. Right now the typical renter can make a LOT of choices. Perhaps too many. Perhaps 6% too many. From 1965 to 1995, using the eyeball, 10% looked to be a good equilibrium point between renters and choices.

So you are probably asking yourself what 6% means in that chart. Well, the math would imply we've got about 2.4 million vacant housing units too many or we're short about 24 million renting households (or some combination of the two).

Let's assume this is true for a moment. What can we do to fix the problem?

1. Not much will get rid of 2.4 million extra housing units except population growth, the forces of nature, or the desire of households to divide and conquer. If an entire renter household decides to buy a housing unit to solve the problem, an empty rental unit is left in his wake. Nothing changes. The previous landlord now has a problem. How's that for dire?
2. So let's work on adding renter households. That would help. We've got 35 million of them. That's up 14 million since 1965. We just need 24 million more. *cringe*

Okay, what if we just live with the problem? Economics 101 says that if you've got way too much of something, say housing units, and the demand drops (say out of fear, a credit crunch, speculators running for the hills, and/or affordability issues) then the price must eventually come way down. That seems to be the solution and I see very little to stop it, well, other than a monetary printing press working overtime to make it appear that the price didn't come down all that much. Unfortunately, the monetary printing press doesn't just target housing units. It also pushes up the price of other things too. Oh well!

See Also:
Housing Bust Recipe
Calculated Risk: Census Bureau: Vacancy Rates Stable in Q3

Source Data:
U.S. Census Bureau: Housing Vacancies and Homeownership (CPS/HVS)
U.S. Census Bureau: 2007 Q3 Residential Vacancies and Homeownership