I am not a Housing Bull, thinking that the net impact of massive government and Federal Reserve bought nothing more than some soft stabilization here.

My skepticism pales to that of Real Estate guru Mark Hanson, from whence the chart below comes. Mark writes:

Your comments of “The present RRE situation can be best described as massive Fed stimulus + government induced foreclosure abatements = some stabilization. Anything beyond that statement falls between wishful thinking and a guess.” are dead on . . .

Plus, don’t forget that a 150bps drop in YoY rates increases purchasing power by 17.5% for the 72% of those who use a mortgage to buy. Given prices are up nowhere near that normalized house prices are still down YoY.

Anyway, June is as good as it gets for existing [home sales] . . .

Several folks have been offsides with the inventory issue. The confirmation bias is rampant, with folks obsessing on inventory but ignoring everything else. The inventory I see that has to be de-levered before the housing market has a shot at a “durable” recovery stands at about 30 MILLION units.

Bottom line: In order to really de-lever the housing market something needs to be done about the 20 to 30 million homeowners in a negative or “effective” (lacking the equity to pay a Realtor 6% and put 20% down on a new house) negative equity position; with 2nd liens; and without the credit needed to qualify for a new vintage loan. That’s because repeat buyers are the “durable” demand cohort, not first-timer buyers and “investors” who come and go with the stimulus wind like we saw in 2010 and will again in the second half of this year.

Mark shows in the chart below that the annual demand for homes int he US is about 4.6m. That is offset by supply of  2.89 million homes in inventory for sale, plus 10.6 million in shadow inventory — REOs, distressed loans, and short sales.


Source: Mark Hanson


I don’t even consider his “Ghost Supply” — all of the homes that are underwater, have 2nd (or multiple) liens and/or impaired credit




UPDATE: July 23, 2012 8:22pm

Quite a few comments about Mark’s 25-40m ghost inventory. My back of the envelope calculations (data from Census):

131 million housing units, with an owner occupancy rate about 66.66%.  About ~88 million homes, of which 30% or so — about 27 million — have no mortgages. Of the remaining ~60 million houses, if the general estimate of 20-25% are underwater is accurate, than its about 12-15 million homes.

Category: Data Analysis, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

33 Responses to “US Housing Inventory Requiring Deleveraging: 30 Million Units”

  1. H. Rider Haggard says:

    So, what might be the impact of the condemn-and-refi scheme described by Matt Taibbi/ (http://www.rollingstone.com/politics/blogs/taibblog/from-an-unlikely-source-a-serious-challenge-to-wall-street-20120720).

    The law of unintended consequences might get a serious workout.

  2. DeDude says:

    If he puts in a “Ghost Supply” should he also put in a “Ghost Demand”? All these people losing their homes would have to live somewhere so they would quickly become renters of other homes (or maybe even the same, purchased by investors and now rented out to the previous owner). When someone try to argue that things are bad (or good) they often end up presenting a picture as good as when you put a hand over one eye. I will give him that if rates were to go up then affordability would be reduced and that could have negative effects on prices, though it may at first inflate the market as those on the sideline would rush to lock in low rates.

  3. MayorQuimby says:

    I don’t buy the 20 million figure at all but I do think that housing supply is underreported. I also think that potential buyers are already saddled with student debt and unaffordable cost of living. So I would say housing will be flat to down for close to a decade with the potential of significant downside in place for that same duration of time. Of course rate increases would throw housing into the toilet as well and with monster deficits that is always a strong possibility.

  4. Frwip says:

    @H. Rider Haggard

    Felix Salmon @ Reuters has written quite a bit about it and is skeptical. I’m afraid he’s correct for that one.


    Many of the people in question fall in the household contraction black hole. Renting, yes, but also moving back with the parents or the kids, sharing rent, etc. All ages average household size in the US is slightly up in the 2010 census, 2.58 vs 2.56 in 2007.

  5. kek says:

    “In order to really de-lever the housing market something needs to be done about the 20 to 30 million homeowners in a negative or “effective” (lacking the equity to pay a Realtor 6% and put 20% down on a new house) negative equity position; with 2nd liens; and without the credit needed to qualify for a new vintage loan.”

    The solution is higher prices. We are starting to get that in the Phoenix market, median prices up 30% YOY.

  6. Frwip says:


    Oopps, sorry. Series US census AVG1 series ‘all ages average household size’ was 2.59 in 2010. 2.58 is the estimate for 2011 (and I suspect it’s too optimistic). So it was even worse than I thought – a 1.2% move in household size in 3 years is quite a s***load – and presumably improving a bit, but there I have my doubts.

  7. deejayoh says:

    Start with some facts: http://www.census.gov/prod/2011pubs/h150-09.pdf

    – Roughly 130mm housing units in the US
    – ~75mm are owner-occupied
    – ~50mm have mortgages.

    This guy comes up with 25-40mm units of hidden supply? In his world, 50-90% of the units with mortgages are “distressed”?

    The term “guru” appears not to mean what I thought it meant.

  8. David in D says:

    The problem I have with macro discussions about ‘US housing’ is that residential real estate is very location specific. Even within a given market one neighborhood varies greatly from another. I think every statement in the article could be true for some areas and false for others. Housing is distinct that way… VERY difficult to talk about from a macro sense.

  9. BennyProfane says:

    @David in D

    “VERY difficult to talk about from a macro sense.”

    Not really. When numbers are this large, the entire market is effected. Sure, some neighborhoods, and entire blocks in regions, like Manhattan or DC are unaffected, but, in the long run, if that many people are suddenly frozen within the market (not out of), well, it’s the only way to talk about it.

    And please, I will shoot the next person who brings up Phoenix again.

  10. kek says:

    Phoenix was close to ground zero in the housing bust, so it’s housing market does carry some weight on a national scale. Home prices in Phoenix also started their decrease a year or more sooner than many other places in the country. The fact that they are now showing increases before many other areas is a positive first step. As investment opportunity could it be an RTC redux?

  11. JMelville says:

    Beside the point but throwing this out there. I’m heraing alot about household size and multi-generational families and the affect ot the market. This was not unusual in our parents case. Both my wife’s mother and aunt lived with the parents for years, saving for a large down payment. Last week the WSJ said builders “can’t build enough” of a new multi-gen style home, and some folks are petitioning zoning boards to allow for this option. While it wont help the market, maybe things are coming full circle, and people are realizing that thrift and delayed gratification really work.

  12. Robespierre says:

    @kek Says:

    “The solution is higher prices.”

    So the other day I bought a new car and it is now under water. I guess “the solution” is for car prices to go higher.

    So kek have you considered that people can not even afford that %20 down at this “affordable” prices? The solution is liquidation at lower prices so “housing” and not mortgages becomes affordable. A subtle distinction the first one you buying value the second one you “owning” debt.

    BTW RTC redux? Well demographics are way different that during the S&L debacle. So no there will not be a RTC redux.

  13. Greg0658 says:

    whats in this housing ? hunter gatherers and being stuff-lite enough to carry that out .. a big issue in a 70% consumer driven economy .. live with others is an assist (parents & friends) .. this is a big shift we have yet to see take hold (we Americans love our independence tho) …. the new housing I’d bet is multi small units to counter years in the McMansions trend (maybe even remold McMansions into units) .. but there is the issue of TIFs (tax increment finance’g) to favor new out of the ground construction for the benefits of more built-up tax base and the commodity useage kickback (wasteful but) .. but never under-estimate a man to figure a way to stay alive somehow someway

    ps – the title of this post is generally right on .. #s are ? .. 8ball says “Cannot predict now”

  14. BennyProfane says:


    There are entire swaths of this country that saw nothing near the massive boom and bust in Phoenix. But, there are millions in those areas who are stuck underwater to second and third liens. Phoenix may be attractive to the new hedge fund sharks, but, it’s hardly indicative of the national market.

  15. Orange14 says:

    Something doesn’t jibe with these numbers as some others have pointed out. Bill McBride (aka Calculated Risk) is about as good an analyst as there is on housing and I’ve not seen anything from him that would point to such a ghost inventory. I also note that WFC is writing mortgages pretty quickly these days and new home builders are in a better position this year than since the meltdown in 2008. Some of the existing homes are being bought up by investors and being turned into rental properties. It is certainly not a bullish business by any means but it’s also not as bleak as Hanson portrays it.

  16. 873450 says:

    David in D Says:
    “The problem I have with macro discussions about ‘US housing’ is that residential real estate is very location specific.”

    The problem was the finance industry first convinced itself and then investors everywhere on earth that residential real estate prices in the U.S. could never go down everywhere at the same time. Bundle together strips of toxic junk loans from diverse areas, slice and dice the junk again and again, then bundle the worst, most toxic loans together and say, “Look at this ingenious investment product we invented for your union pension funds, college endowments, charitable organizations, etc. It has a rating. You can buy “insurance.” We did. We’re betting the investment we sold to you will crash down on your head a year or two from now, just like we planned. Then we’ll go pick up that insurance check.

  17. David in D says:

    @873450: I agree, but am not sure how that negates what I said.
    @BennyProfane: The mistake I think you are making is assuming ‘the numbers’ apply to every single area in America. The only thing that really is macro is mortgage rates, but you can’t count inventory either in a supply or demand sense without considering the specific area. I agree that for general discussion the macro works, but on the level of ‘should I or should I not purchase/sell a given home in a specific neighborhood’ I don’t think the macro discussion is that insightful. There are many examples of this; for instance in Denver (where I live) the more desirable neighborhoods never saw a decline (they did see rate declines but not absolute ones) and this is due to a supply issue matched up against continual and robust demand for specific locales. I think you find similar examples in most major metropolitan areas.

  18. JasRas says:

    So while on the surface, the numbers could be right, could be dead-on, but what is so disappointing about housing statistics is that it seems what is shown make the housing market look like one homogenous glob where every house is in the same price point. It is one bit of analysis that doesn’t benefit from median averaging… The reality is there is a huge dislocation in the “shadow inventory” and where the demand lays. The older population with the larger, expensive homes are underwater. And their homes are too expensive anyhow for the population that is coming online to buy homes. When one talks to a realtor or a builder or reads something from a publicly traded homebuilder, one will find they are experiencing shortages in the “starter home” level…and the multi-family dwelling (ie. apartments/condo).

    Young people are not going to be buying Babyboomer homes as the boomers try to downsize or move. They are at different stages of life.

    In addition, there are geographic dislocations. Over supplies of housing in geographic areas that need less housing now, and Shortages in areas that badly need housing. Hear what is going on in North Dakota? People sleeping in cars because they’ve got the job, but housing supply is not keeping up with demand. The boom cities for housing over the last 10-15yrs are not necessarily where the housing is needed now. And it’s not like you can move those homes to where they’re needed. This is how ghost towns are born…

    So while this analyst’s numbers work on paper where everything adds up to trouble, the reality is something different. And while we are WAY far off the numbers seen a mere 7-10 years ago, recoveries aren’t measured from the high water marks, but from the move off the bottom.

    Miss it if you choose, but a little more due dillegence might call into question your overall stance.

  19. louis says:

    Just wish the original problem to the cornfield.


  20. wally says:

    I think BR is reaching to confirm his own biases – a fault he decries in others. This is because of his detailed 5-part “this is not the bottom” call… which was, of course, a bottom call.
    The fault of so much of this reasoning is that it tries to regard all housing as homogeneous and interchangeable. It isn’t and that while all the crap does not need to be “cleared” before the picture improves.

  21. flocktard says:

    I don’t buy the “20 million” number either, especially at this stage of the aftermath of the bust. Aside from that, JasRas hits the point I’ve made: “All real estate is local.” So we have hotspots in Manhattan and the Boroughs, the Hamptons, parts of New Jersey, brokers complaining of a lack of inventory in certain markets, and this is what forms the basis of a recovery. It was the secondary and tertiary markets that got hammered the most in this bust, and they will take the longest to heal. But the primary markets with deep population centers are showing some surprising strength, including the return of bidding wars. That’s how you know the recovery is for real: the heart of the market is beginning to show life- the extremities will follow later.

  22. kek says:

    @Robespierre, yes the solution is higher prices. WIth higher prices appraisals come in on refis, equity is built giving people more options. Like in the stock market, defying logic, sometimes shit just stops going down in price, many times on low volume, not the panic crescendo that people wait for.

    Bottoms are built on fatigue.

    RTC had the buys of a lifetime in real estate. Things were selling at 20% of cost of improvements, and those dumb enough to buy made many multiples. Today regular single family homes are selling at 60% of cost, with cash on cash returns of 10%+. If you want good news, then expect bad prices.

  23. brianinla says:

    How can people be so math-challenged? Hanson’s numbers are solid. He says housing supply – all types. Not just owner-occupied. So the percentage is based off the 130 million. I know multiple people that own rentals with negative-to-no equity. Same with people that own a vacation condo in Maui or a ski resort. They’re making the mortgage payments, but there isn’t 25%+ equity in it.

    Plus Hanson’s definition of “effective negative equity” is the 20%+6% needed to purchase a new house. That’s the responsible house purchaser – not the 3.5% down FHA buyer. Is it smart for the federal government to give out mortgages with only 3.5% down? Well, FHA deliquencies increased 26% in the last year. Bill McBride doesn’t show the negative numbers because he already made a housing bottom call in February so he has to stick with it now.

    HAMP and HARP are proven failures. FHA is only creating debt zombie owners. Don’t act surprised when the GSE’s report they lost another $100 billion.

  24. Hammer of Thor says:

    Isn’t anyone else bored of reading this stuff? Look at this chart! According to my calculations, only the flux capacitor can erase the 2 billion homes in ghost protocol inventory! I’d like to see some facts. Also, what government stimulus is bidding up housing prices? If you’re talking about ZIRP, that’s not going away anytime soon.

  25. DeDude says:


    Thanks for bringing out the data (I always appreciate that), but you are being a bit of a poster-boy for confirmation bias. You obviously are “looking to prove” that housing will get worse, yet your data show 2007-2010-2011 household sizes 5.56- 2.59- 2.58. The last number, you challenge as to optimistic with no other support that your bias. Why would the numbers that go against your thesis be wrong but numbers from the same source that support your thesis be just fine?. But even if we made that last number 2.59 the data would still show a drastic halt in the increase of household size (and a disappearance of the negative contribution of this phenomenon to housing). The driver of “doubling” up is the loss of income (jobs), not the loss of houses. When people lose their home but not their income they go rent. So the driver for the increase in 2007-2010 was the huge loss of jobs, and unless job loses increase again, we are not likely to see any increase in household size.

  26. DeDude says:

    (sorry it was 2.56 not 5.56)

  27. ElSid says:

    Looks like some of Bill Emmon’s work, sorta.

    Looking at the numbers, I came to this conclusion several years ago. Then, I saw a C.S. Smith post on it. Then, most recently, I saw a Powerpoint by William Emmons, of the St. Louis Fed, on more or less the same topic.

    Essentially, what I figured, was that if you removed the equity from homes owned outright, the outstanding mortgage balances were almost exactly the same as the equity, meaning that the aggregate of people who had loans had in aggregate essentially ZERO equity. Of course, this means some of them had a lot of equity, while some of them were underwater enough to have negated that equity.

    Of course, this is a brutal situation, as it chains people to their homes, makes it so they cannot refi, and makes them much more likely to default. Emmons says that something should be done about it.

    Below is a presentation by Emmons to the MBA in February of this year, which includes charts that show that mortgage holders, or more or less 70% of homeowners, in aggregate owned about 6.7% of the housing equity.


    Homeowners are at the very least *feeling* underwater to the tune of 20% of GDP. And they are unable to move or refi because of that.

    Of course, if you’re not from CA, FL, AZ or NV you never believe the figures, but believe me, I know people who only had modest jobs here in CA and had/have $800K homes, which are now worth $350K. Just one house makes up for the entire equity held by mortgage holders in a dozen houses in Wichita. In theory, that should make it easy to fix, but who cares about someone who got leveraged in over their head and is now screwed and who is not named Pandit?

  28. [...] This viewpoint remains the minority perspective. (see yesterday’s Deleveraging 30 Million Units). [...]

  29. socalguy says:

    Barry, any idea why the Mark-to-Market suspension for banks’ real estate holdings some 4-5 years after the crisis point is never talked about in the media?

    Its barely even Googleable.

  30. Vitus Capital says:

    BR – Your calculation seems not to be of the Ghost Inventory but of “Distressed Loans”, under Shadow Inventory. I don’t see how your calculations adress the Ghost stuff, ie, effective negative equity, second liens, etc.

  31. deejayoh says:


    there aren’t 130mm mortgages. Sounds like you are as math challenged as any of us.


    BR: FIrst mortgages? Second liens? Commercial mortgages?

  32. [...] Noticeably omitted from this discussion is the single most important element driving home sales: Zero percent interest rates, and their impact on Mortgage costs/purchasing power. It is even more astonishing that an article about a home price recovery can omit any mention of the Fed and Ben Bernanke. Mark Hanson has looked at this, and he notes that the Fed’s QE/Twist programs have driven mortgage rates appreciably lower, now down to 3.625% from over 5.0% when the Fed started theirshort term bond purchases. Anyone who uses a mortgage — ~70% of all buyers — have been gifted a 15% increase in purchasing power for a house on the same monthly payment. Despite this huge increase in buying power, home prices are up less than half of this. (Incidentally, I think Hanson is too bearish). [...]