View Full Version : Ivy Zelman's view on US Housing (now tracking close to iTulip)

10-23-07, 08:12 AM
Bloomberg column on Ivy Zelman's latest...

U.S. Housing Decline Threatens to Last Into 2009

By John F. Wasik
Oct. 22 (Bloomberg) -- Ivy Zelman's view of the U.S. housing market is gloomy, but it's probably the most realistic.

A veteran Wall Street analyst, Zelman, chief executive of the research firm Zelman & Associates, says it's unlikely the U.S. housing market will recover before 2009, adding there's a ``50 to 60 percent chance of a recession,'' as the housing slump curbs consumer spending...

...``I've never seen the market as bad as this,'' Zelman said. ``And it could get worse. The home-price decline could range from 16 percent to 22 percent.''...

...``These are the worst inventories we've seen as a nation,'' she says...

...While Zelman forecasts that sales will drop for the next two years, she isn't as optimistic on home prices, which she says may continue falling until 2010 or 2011...

Link to article:

10-23-07, 11:17 AM
It is funny how all the prognosticators are assuming the housing recession will be only a few years.

Zelman is one of the pessimists - 2011 vs. 2008/2009 average.

Besides the previous average 5-7 year real estate downturn mentioned numerous times on iTulip, we also have the lovely ARM/subprime reset chart - to which should be added the 18-24 month foreclosure cycle.

This is probably where Zelman gets the 2011 number; resets largely finished by end of 2008; 6 months to absorb remaining borrowing/cash capacity in suckers - I mean mortgage payers - then 18-24 months for foreclosure process.

Of course, this doesn't take into account the 2nd and 3rd order effects of the REOs slamming into an already depressed market.

If the 650K houses sold/year is indeed a cycle low, this implies inventories will swell to 8.5M+ as there are now at least 2M more foreclosures to come plus the existing pipeline of 1.5M foreclosures, plus existing inventory of ~5M.

This inventory increase to 8.5M homes is not out of the question - or put another way it would be something like 1 out of every 8.8 owner occupied homes! Or 1 out of 13 of all homes period!

And this isn't a sign of Great Depression II?

Of course, it is probable that a large percentage of the 5.1M inventory are foreclosure candidates.

The question is whether this would offset the additional inventory arising from people who won't go into foreclosure, but equally cannot afford to continue to live in there existing home.

For example:

Divorce: Assuming a rate of around 3 per 1000 people, this would mean something like 900K divorces/year. If these marriages have an ownership equivalent to the national average, this means again around 600K homes potentially needing to be sold.

Death: Something like 2.5M people die every year in the US. 2/3rds of this number are represented by the 65 and up demographic groups. Dividing by 2 to remove 'survivor bias' and again assuming a national average rate of home ownership, again you have about 600K homes which will likely be sold being a 2nd home for the inheritors.

Job changes: Some research shows 10% of job changes involve relocation. 1.8M jobs were added in 2006 - again assuming conformity to national average home ownership, this implies 100K+ homes for sale.

All in all it is safe to assume that at least 2M of home inventory will need to be sold consistently due to circumstances like those listed above.

Adding 3.5M foreclosure homes bodes poorly for the future - a number higher than even existing inventory numbers. Add in the 1M+ of new homes STILL BEING BUILT.

On top of this, add in 1M or 2M of additional sales for people moving to larger/smaller homes, better school districts, etc and the numbers just get fugly.