Tag Archives: Unit (housing)

Buffett’s Views on Housing

Buffett’s Views on Housing

by CalculatedRisk on 2/25/2012 

In Feb 2010, Warren Buffett wrote:

[W]ithin a year or so residential housing problems should largely be behind us, the exceptions being only high-value houses and those in certain localities where overbuilding was particularly egregious.

Of course I disagreed with his timing.

Then in Feb 2011, Buffett wrote:

A housing recovery will probably begin within a year or so. In any event, it is certain to occur at some point.

As I noted last year, the key word was “begin” and sure enough – based on housing starts and new home sales– it appears a modest recovery has begun.

Today Buffett wrote:

Last year, I told you that “a housing recovery will probably begin within a year or so.” I was dead wrong.

Really? And I was going to give him a little credit this time. Oh well.

More from Buffett:

Housing will come back – you can be sure of that. Over time, the number of housing units necessarily matches the number of households (after allowing for a normal level of vacancies). For a period of years prior to 2008, however, America added more housing units than households. Inevitably, we ended up with far too many units and the bubble popped with a violence that shook the entire economy. That created still another problem for housing: Early in a recession, household formations slow, and in 2009 the decrease was dramatic.

That devastating supply/demand equation is now reversed: Every day we are creating more households than housing units. People may postpone hitching up during uncertain times, but eventually hormones take over. And while “doubling-up” may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure.

At our current annual pace of 600,000 housing starts – considerably less than the number of new households being formed – buyers and renters are sopping up what’s left of the old oversupply. (This process will run its course at different rates around the country; the supply-demand situation varies widely by locale.) While this healing takes place, however, our housing-related companies sputter, employing only 43,315 people compared to 58,769 in 2006. This hugely important sector of the economy, which includes not only construction but everything that feeds off of it, remains in a depressionof its own. I believe this is the major reason a recovery in employment has so severely lagged the steady and substantial comeback we have seen in almost all other sectors of our economy.

Buffett makes several key points:
1) Housing completions have been at record lows.
2) There are currently more households being formed than new housing units completed, and this is decreasing the excess supply.
3) The excess supply will be “sopped up” at different rates across the country.
4) Housing is a key reason for the sluggish economy (not the only reason).

1 Comment

Filed under Economy, Home Sales, Housing

The Excess Vacant Housing Supply

The Excess Vacant Housing Supply

by CalculatedRisk on 12/14/2011 

Over the last few days, there has been some more discussion on the current number of excess vacant housing units in the United States.

There are always a large number of vacant housing units – this includes second homes, housing units for rent, homes sold but not yet occupied, and several other categories. The key is the “excess”. Once the excess is absorbed in a local area, then new construction will pickup (we are already seeing an increase in apartment construction in many areas).

Here is the recent discussion, first from an article by Catherine Rampell over the weekend in the NY Times:

Household formation has slowed dramatically since the recession, as cash-strapped families double up and unemployed recent college graduates are unable to leave behind their parents’ couches. To judge just from demographic statistics, more than a million households that should have been formed in the last few years weren’t, according to Mark Zandi of Moody’s Analytics.

The tally of missing households is approximately equal to the country’s current surplus of vacant homes.

Dean Baker responded: Mark Zandi and the NYT Hugely Underestimate the Number of Vacant Homes

The NYT cited Mark Zandi as saying the number of vacant homes is roughly 1 million, which he puts as equal to the gap in household formation that resulted from the recession. According to the Commerce Department, if the vacancy rate was back at its pre-bubble level, there would be 3 million fewer vacant units.

Unfortunately Dr. Baker is using the Census Bureau’s Housing Vacancies and Homeownership (CPS/HVS) survey, and there are serious questions about this survey. See Be careful with the Housing Vacancies and Homeownership report and Lawler to Census on Housing Data: “Splainin” Needed Not Just on Vacancy Rate. The HVS is based on a fairly small sample, and does not track the decennial Census data. Dr. Baker’s estimate of 3 million excess vacant housing units is probably far too high.

Using the Census 2010 national data, Tom Lawler estimated “a number in the 1.6 to 1.7 million range seems about right.” (as of April 1, 2010) and “probably in the 1.2 to 1.4 million range on May 1, 2011.”

Using the Census 2010 state data, I estimated that the number of excess vacant housing units was above 1.8 million on April 1, 2010 (the date of the Census). See: The Excess Vacant Housing Supply. The number of excess units is lower today – even with sluggish household formation – because thebuilders are completing a record low number of housing units this year.

Lawler’s most recent estimate was as of May 1, 2011. We can walk that forward to today. The decline in the excess vacant housing units is equal to new households formed, minus completions, minus scrappage (demolitions). Completions are still at record lows, and the excess vacant housing supply has probably declined conservatively by another 200 to 300 thousand units over the last seven months – so the excess vacant housing supply is probably close to 1 million or so as the NY Times reported.

Leave a comment

Filed under Home Sales