Excess Inventory Will Delay Market Recovery

Washington-The nation's excess housing inventory totals nearly 3 million units, according to a new tally by the National Multi-Housing Council.

The group counts nearly 1 million empty units on the market over and above what was the normal amount during the 1990s and almost 2 million occupied units. And it says it's doubtful the extra stock will be worked off anytime soon.

"We're unlikely to be out of the wood until 2010 at the earliest," according to a research report prepared by the Multi-Housing Council's vice president of research and chief economist, Mark Obrinsky, the report concludes.

According to the latest Census Bureau count, 2.2 million vacant housing units were for sale as of this year's second quarter. Based on data from the American Housing Survey, the NMHC figures that the total breaks down to 1.8 million vacant single-family houses and 325,000 empty multifamily units.

But the study points out that not all the inventory can be considered excess. "Some vacant units are both normal and necessary for smoothly functioning markets," it says.

If the 1.6% vacancy rate for the 1990s could be considered "normal," the research note goes on, then the "right number" of for-sale units would be just over 1.2 million, meaning only 950,000 units - 825,000 houses and 125,000 apartments - can be considered surplus.

Even though the number of excess houses is greater than a typical year of production is the 1990s and roughly 75% of the average production level since 2000, the report says the problem of excess inventory is greater of the multifamily sector because the number is three times the annual rate of apartment production in the '90s and about 10% more than the biggest single year of new construction so far this decade.

The study also points out that besides vacant units, there also is a plethora of unsold but still occupied houses on the market as well as empty units.

On average, the inventory of existing houses and condominiums that are for sale is equal to about six months worth of sales. But the inventory for June, July and August is running at 11 months supply, meaning about 4.4 million units are for sale, the report says.

The startling high number, which is "far higher" than anytime prior to 2007, breaks down to 3.8 million single-family units and 675,000 apartments, according to the NMHC. Allowing for the normal, six-month supply of 2.2 million houses and 293,000 apartments, that puts the excess inventory of occupied homes at about 2 million - 1.6 million houses and 382,000 apartments - which is twice the oversupply of empty houses currently on the market.

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