Is Housing Headed for Another Cliff?

Before you go, we thought you'd like these...
Before you go close icon

Data out of the housing market have pundits declaring that the market bottom may finally be near. Not everyone is convinced, though. For instance, an article on Business Insider yesterday sported the ominous headline "Prepare for the Coming Housing Collapse."

Wait? Didn't we already have that? Oh, you mean another one. Now that's a scary thought.

To understand the present and have any hope of predicting the future (as if that's possible at all) it's good to have a good grasp on the past. However, getting too stuck on the past -- particularly the recent past -- can often lead even smart people to simply predict that the trend will simply continue indefinitely. That's actually a popular approach to forecasting and it's often wrong.


Will predicting an additional collapse for housing work out better? Perhaps it's more than a zero probability, but I'm not betting on it.

But let's take a look at a few numbers
According to Census data, 13.9% of houses were vacant in the first quarter of this year. That may sound high, but on average 11.9% of houses were vacant between 1995 and 2005. So essentially there's 2% of "excess" vacancy.

That's no small matter -- 2% equates to around 2.7 million homes. But it may not take as long as you'd expect to mop up that excess inventory. Total occupied homes in the U.S. -- which includes both homeowners and renters -- increased by almost 2 million in the first quarter. Between 2010 and 2011, occupied homes increased by 1.6 million.

This brings us to another sticking point for housing bears, though: renters. The author of the Business Insider article writes:

That leaves first-time buyers. Do you really think there are enough potential first-time buyers out there to keep prices from declining further? I've written extensively about renters and the changing attitude toward buying a home.

Looking at some more Census data, he's on point about renters -- in the first quarter 8.8% of rentals were vacant. That's a lower rate than we saw before the recession. In the first quarter of 2004, 10.4% of rentals were vacant. So it does appear that there's increased rental demand after the housing collapse.

But here's the funny thing about rentals: Somebody has to own them. More folks may indeed be choosing renting over buying, but unless they're willing to accept the label "squatter" -- and the legal ramifications associated with that -- they'll be moving into a property that somebody else owns. And if rental demand continues to increase, rental rates will rise, and that will encourage investors to buy properties to rent out. And that has already been playing out as the share of housing purchases by investors jumped to 44% last year.

"Investor" may not have the nice ring of "first-time homebuyer," but a buyer is a buyer.

To be sure, I don't think the next few years will be boom times for new-home builders such as Beazer (NYS: BZH) , Pulte (NYS: PHM) , and KB Home (NYS: KBH) , but some housing-related companies -- think Home Depot (NYS: HD) or Lowe's (NYS: LOW) -- could see activity pick up as the shuffling of existing vacant homes continues.

At the time this article was published Motley Fool newsletter services have recommended buying shares of The Home Depot. Motley Fool newsletter services have recommended writing covered calls on Lowe's Cos. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners