Blogging from “The Reinvented City,” in Cambridge, Mass., a conference sponsored by the Nieman Foundation, the Lincoln Institute of Land Policy, and the Harvard Graduate School of Design.
Wellesley economist Chip Case, who studies housing bubbles (and who founded the Case-Shiller real estate report) says this downtown is odd because typically a housing oversupply means production slows, and the supply gets soaked up as new households form. But new household formation is lagging – it’s going away almost as fast as production is going away. Rental vacancies are up to 11%. This is odd. If people are getting kicked out of their houses (foreclosures, etc.) you’d think they’d be turning to rental housing. But they aren’t. (I’ll get to the why in a minute but it partly involves immigration.)
So the lack of household formation is disrupting the traditional pattern of how a downturn turns around. His verdict: “Jobs have to start coming back.”
There are positive omens: New housing starts are up. The existing inventory is down – a year ago the estimate was the housing inventory was an 11.5-month supply and now it’s 6.7 months. Sales of existing housing (which he thinks is a better gauge) are up to 5.35 million, up from 4 million of recent years/months. But 27 percent of those sales are auction sales (i.e. foreclosed houses).
His conclusion: There’s a greater than 50 percent chance we’ll get out of this recession without a second dip (the so-called W-shaped recession, as in the 1980s). But not as high as an 80 percent chance.
And immigration? I asked what was the cause for the lack of household formation. His reply: He thought it was people doubling up, as in college graduates without jobs moving back in with parents, families moving in together, etc. That’s some of it, he says, but a demographer he talked with recently told him that immigration is turning around.
And that doesn’t mean that there’s just less of an increase. People are going home, he said. “And that’s bad for us – despite what the talk show guys say.” The reason is that the shrinking number of households is keeping the recovery from, well, recovering.