Friday, April 1, 2011

Shadow Housing Inventory

This article from the Wall Street Journal says it all.

Nine months of supply plus 8.6 months of additional supply is 17.6 months of current housing inventory.

Normal supply, or market equilibrium, is usually six months of inventory.

The difference between 6.0 and 17.6 is the size of the Grand Canyon if you are trying to sell homes.

Residential housing prices are going nowhere soon but flat or down.  Of course, each individual geographic market has its own unique demand and supply characteristics, but on a larger level the trend is your friend and it is hard to swim against the tide.  (Intentional mixed metaphor.)

Too much supply, and a rapidly shrinking pool of qualified buyers, plus higher interest rates on the way does not make for a healthy operating environment.

Residential housing in the U.S. does not look too good anytime soon from an investment perspective.

Commercial real estate, however, is another story.  I'll be discussing this sector in greater depth soon in this blog because, quite frankly, the housing sector is dead money for the time being while some commercial sectors are red hot and smoking.