Is the USA Facing a Housing Shortage?

By Walter Kurtz, Sober Look

Homes available for sale as well as the housing supplies measured in months are now at pre-recession levels, while household formation continues to recover (see post). This development was predicted by William Wheaton back in 2009 (see figure 1).

Forbes: – Most striking however is the fact that inventory has contracted to its lowest level since December 1999, more than 13 years ago. The number of available homes, which is not seasonally adjusted, fell 4.9% from December and is 25.3% lower than a year ago. With 1.74 million homes on the market, at the current sales pace, supply will be exhausted in just over four months. It represents the lowest housing supply since April 2005. In a normal market, a healthy supply level is about six months.

A number of economists continue to talk about the shadow inventory – the millions of homes that are “about to hit the market” as homeowners have or shortly will fail on their mortgages. Some evidence suggests that in the more depressed housing areas banks are indeed sitting on foreclosed properties, unwilling to sell. But a number of banks have also been aggressively modifying mortgages, reducing principal and interest, and therefore cutting delinquencies.

Clearly many more homes will be hitting the markets this year. But it really doesn’t make much difference if people who move out of these homes end up buying or renting – they need to live somewhere. And according to the Census Bureau, rental vacancies are near a 10-year low.

Ironically, the relatively tight credit conditions are (at least partially) restricting new home construction. Completion of new housing units has improved recently but remains at historically depressed levels – certainly not enough to keep up with the population growth and family formation (see figure 2). The danger of course is that with spring approaching (generally a period of increased demand for homes), some markets could overheat due to tight supplies, worsening home affordability and dampening sales numbers.

(Figure 1 – Source: JPMorgan)

(Figure 2 – Source: NY Fed)



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Sober Look

Sober Look

Sober Look was founded by Walter Kurtz, a New York based hedge fund manager and credit markets specialist.

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  1. I do not know what to make of housing. I remain neutral for a variety of reasons:

    1) There is still not enough transparency to really tell what is going on with the forclosure markets. I would not trust any data coming out of a bank in these days.

    2) I would not trust anything that the NAR says. I would not listen to any economist who has a vested interest in the matter.

    3) A true housing recovery would require a re-inflation in the mortgage market … with what money?

    4) Hoping that the housing market will help revitalize the economy is hoping for the status quo and admitting that the rest of the economy is incapable of generating new forms of growth. Housing epitomizes the hope in an economy that just consumes like there is no tomorrow instead of investing.

    5) The housing market is extremely localized, so looking at aggregate numbers makes even less sense than with other economic indicators. We all hear about certain booms in the high end housing fueled by foreigners buying, institutions getting into the real estate for investment purposes, etc … to date, I have not seen a clear analysis for what is contributing what to the housing story. The last thing I’ll believe is that actual households are getting back in a position to buy in a sustained way. In the end, people will only buy what they can afford, so the supply side of the housing equation is only part of the story.

  2. The subject “expert” in your article was singing a completely different tune in 2004
    Peter Wallison, 2004: “In recent years, study after study has shown that Fannie Mae and Freddie Mac are failing to do even as much as banks and S&Ls in providing financing for affordable housing, including minority and low income housing.”

    And the research that proves what he thought in 2004, which debunks what he is saying today, is overwhelming follow any of the links from this link:

    Oh, but it is the “liberal media’s” fault. Good grief