This week a very special girl turned seven. You might have felt the earth's rotation stop as the universe began to orbit around her briefly. Sorry to those on the East Coast for that little earthquake thing. What this all means is that I'm currently at an undisclosed location (without Internet access) and so this News Digest only has two early week items. Hope your week has been as enjoyable as mine.
- CNN reported this week that the "shadow inventory" of homes (sounds menacing, doesn't it) is improving. This is the tremendous number of homes that are sitting in some state of foreclosure waiting to be dumped onto the housing market, an estimate of somewhere between 4 million and 5 million homes (a swing of 20% in the estimate -- clearly using soft numbers). "Improving" is a relative term as we are talking about going from 4 years and 4 months of extra inventory to 3 years and 11 months of extra inventory. In other words, we went from a really, really, really long time for the housing market to correct to just a really, really long time....assuming there is not another recession.
A recent report from Standard & Poor's found that the time it would take for banks to purge all of this so-called "shadow inventory" from the market (through foreclosure sales, mortgage modifications and other measures) shrunk to 47 months during the second quarter, a significant drop from the 52 months it estimated for the first quarter of this year.
- The Associated Press reported this week that new home construction continues to fall, with the number of new homes constructed falling to an annual rate of 298,000. For many communities like mine that had previously morphed the basis of their local economy into home construction, these numbers are devastating. For local governments waiting for construction to kick back in and for "new growth" to magically appear, the wait continues.
The troubled housing industry is hurting the broader economy. After previous modern-day recessions, housing contributed up to 20 percent to U.S. economic growth. That has fallen to 4 percent following the Great Recession.
- Let's put these numbers together in what is admitted an apples to oranges comparison (there are so many regional factors, for example). Nationally we have 4 to 5 million homes in the current "shadow inventory" and at the same time are building homes at a rate of 300,000 per year. That means that every new home constructed is competing with between 13 and 17 homes being dumped onto the market through the foreclosure process.
Is there any question anymore that we are entering a new era, one where the old assumptions of growth and development no longer apply? We widen a road and are supposed to magically get growth. We build an industrial park or a frontage road and expect things to happen. We zone land in the anticipation that some private developer is going to come in and turn it into a development. These were fantasies brought to life by a one-time set of conditions that can not be repeated.
The sooner we come to grips with this, the sooner we can get on to doing something more productive.