Because housing is durable, the housing supply is slow to adapt to declines in demand. This paper uses long-term vacancy—defined as nonseasonal housing units that have been vacant for an unusually long period of time—to quantify the extent of excess supply in the housing market. I find that long-term vacancy is less than 2 percent of all nonseasonal housing units and accounts for only one quarter of the aggregate increase in nonseasonal vacancy from 2001 to 2011. Thus, at the national level, excess supply is considerably less extensive than indicated by traditional measures of vacancy. However, the stock of long-term vacant housing is concentrated in a small number of neighborhoods that do have appreciably high long-term vacancy rates. Some of these neighborhoods have characteristics suggesting that excess supply is related to overbuilding during the housing boom, while others have characteristics that are symptomatic of persistently weak housing demand.
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, decreased 1.8% in August to a seasonally adjusted annual rate of 5.05 million. This annual rate is 5.3% lower than the 5.39 million-unit level in August 2013.
Lawrence Yun, NAR chief economist, says sales activity remains stronger than earlier in the year, but fell last month as investors stepped away. “There was a marked decline in all-cash sales from investors,” he said. “On the positive side, first-time buyers have a better chance of purchasing a home now that bidding wars are receding and supply constraints have significantly eased in many parts of the country.”
Yun adds, “As long as solid job growth continues, wages should eventually pick up to steadily improve purchasing power and help fully release the pent-up demand for buying.”
The existing home sales rate in each of the 4 U.S. regions in August:
Northeast: 0.67 million from 0.64 million month prior.
Midwest: 1.24 million from 1.21 million month prior.
South: 2.03 million from 2.12 million month prior.
West: 1.11 million from 1.17 million month prior.
Total housing inventory at the end of August decreased 1.7% to 2.31 million existing homes available for sale. That represents a 5.5 month supply at the current sales pace. Unsold inventory is 4.5% above a year ago, when there were 2.21 million existing homes available for sale.
The median time on market for all homes was 53 days in August. That is up from 48 days in July. Short sales were on the market for a median of 135 days, while foreclosures typically sold in 53 days, and non-distressed homes took 52 days. 40% of homes sold in June were on the market for less than a month.
The national median existing home price for all housing types was $219,800 up 4.8% from a year ago.
The Chicago Fed’s National Activity Index (CFNAI) was a reading of -0.21 in August, down from July’s revised reading of +0.26. The negative figure indicates that the index is below its historical trend. The index’s 3-month moving average is at +0.07.
45 of the 85 individual indicators made positive contributions to the CFNAI in July, while 40 made negative contributions. 42 indicators improved from July to August, while 43 indicators deteriorated. Of the indicators that improved, 12 made negative contributions.
The total index was dragged down by the Production and Income component which registered -0.17 from +0.24 in July. Employment and Hours was an even 0.00 from +0.10, Personal Consumption and Housing was -0.12 from -0.13, and Sales, Orders, and Inventories was +0.08 from +0.04.
The CFNAI is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories. Each of these data series measures some aspect of overall macroeconomic activity.
It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.
Privately-owned housing starts in August were at a seasonally adjusted annual rate of 956k. This is 14.4% below the revised July estimate of 1.117 million, and is 8.0% above the August 2013 rate of 885k.
Single-family starts decreased to an annual rate of 643k from 659k and multi-unit starts decreased to 313k from 458k.
Here’s how it could play out, according to Silvercrest’s Chovanec.
“When property developers can’t get more credit, they have to slash prices to unload their unsold inventories (and pay back their debts), which gives investors second thoughts about whether to continue plowing their money into property,” he said.
“Sales dry up, prices fall, new [housing] starts dry up, construction dries up, sales of construction equipment, concrete, and steel dry up, land sales dry up, local government revenues disappear and they can’t pay their debts … in other words, falling asset prices undercut the basis for both past and future lending, and you’ve got a real system-wide problem,” Chovanec added.