RISI Viewpoint: Housing market: Interpreting the US Census Department shelter inventory data

RISI Viewpoint: Housing market: Interpreting the US Census Department shelter inventory data

JULIAN, PA, Dec. 20, 2012 (Viewpoint) - By Bob Berg, Principal Economist, Lumber

In our past discussions on the housing market, we have focused our attention on the inventory correction that needs to take place in the shelter market before housing starts can recover. The US Census Department's shelter inventory data for the third quarter of this year indicate that the demand for shelter is improving and the overhang of excess inventory in the shelter units for sale and for rent is shrinking. However, the inventory of other units held off the market remains sizable and the correction in this component of the shelter market will determine how fast demand for shelter shifts from existing homes to new home construction.

On the demand side, household formations increased significantly in the third quarter. The number of new individual or family units increased from an average of 0.06 million per quarter in the first and second quarters of 2012 to 0.50 million in the third quarter. This jump in new household formations is indicative of the volatility that characterizes this series. If the pace set in the third quarter is repeated in the fourth quarter, new household formations at the end of 2012 will be up 1.10 million from the end of 2011, which will put it close to the average pace set in the 1990s (Figure 1). This seems like a reasonable estimate based on job growth (jobs not unemployment rate), home sales trends and falling apartment vacancy rates.

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