Vacancy Nation

Last week, I went to lunch with some friends and they asked me how many vacant houses there were in the USA. Here is the data from the US Census Department –

130,302,000 Total Housing Units
18,843,000 Vacant

Or a 14.5% Vacancy Rate!

How many years of inventory is that?
How much of that inventory is not for sale and being held off the Housing Market at places like FHA and Citibank?

http://www.zerohedge.com/article/188-million-vacant-homes-q3-seasonally-adjusted-homeownership-rate-decade-low

The big issue going forward for Real Estate is that there is an enormous pile of debt that will have to be refinanced in the next few years. Because Real Estate prices have fallen so sharply, many of these Commercial Loans and Residential Mortgages will not be able to be refinanced.

Here is a chart of the oncoming wave of Residential Option ARM mortgages that will have to be refinanced in 2010 – 2012. If the house you own is worth less than you paid for it and your bank calls to tell you that you need to refinance your mortgage, will you A) walk away from the house or B) walk away from the house?

The deflation we are seeing in asset prices is simply a function of contracting credit and too much inventory (Supply) for not enough buyers (Demand). I think the big Recast wave for Option ARMs will be a big weight on housing prices in 2010 – 2013.

Commercial Real Estate
There is $1.4 Trillion coming due in Commercial Real Estate (CRE) loans over the next 5 years. These properties have the same issue as Residential Real Estate (RRE) – Negative Equity, limited available credit, too much Inventory for current Demand.

http://lansner.freedomblogging.com/2009/11/25/how-banks-may-lose-430-billion-more/45087/

To put $1.4 Trillion in perspective, that equals all of the CRE paper maturing from 1994 – 2009!

All of this tells me that the Fed will continue to print several $100 Billion per year for the next three to five years. Call it Quantitative Easing or call it Government creating artificial demand to prop up asset prices and allow banks to offload newly financed debt to the US Taxpayer.

Any way you slice it, the prospects of the US Economy finally being able to focus its resources on real growth and job creation seem to be bleak, at best.