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The Ho-Hum Truth About the Housing Market

Boom?! Bust?! Calm down, pundits -- it's neither.

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While the potential inventory flood is something skeptics are understandably worried about, a bunch of investors as well as pundits have come to some unfounded conclusions about what could happen to the real estate market once that bank-owned property goes up for sale in 2013.

My guess is they’re making decisions based on what they’re seeing happen to neighbors across the street, or what they’re hearing from other people at work. It’s a gut-based decision instead of a rationalized decision, however, because they don’t actually know the number.

I do know the number, though. It’s 629,000. That’s how many homes are currently owned by banks and mortgage lenders. It will take about 15 months to sell those homes, based on current sales rates. While those are selling, the banking industry is repossessing houses at a rate of 700,000 per year, at least according to RealtyTrac. My guess is, by this time next year, bank-owned real estate will be somewhere around 850,000 properties … though the rate of foreclosures is actually falling now.

It’s a big number, sure, but I don’t see it as the ticking time bomb the rest of the market sees. Here’s why:

Crunching the Numbers

Adding what probably will be about 850,000 foreclosed houses to the current inventory of 2.5 million existing homes for sale brings the figure up to 3.35 million. Ladies and gents, that’s still just about the average of a multiyear range, the tail end of which played host to the current recovery.

Moreover, with only 145,000 new houses on the market right now, the total current and future inventory will remain at rock-bottom levels.

Let’s be generous, though, and say the total “new” inventory ramps up to 300,000 homes a year from now (which would be a monumental feat for the construction industry). Then, the total mid-2013 inventory of all houses — bank-owned, plus new, plus existing — still would be something around 3.65 million homes based on current levels and trends. That’s still an amazingly low “overall” inventory number.

Translation: The current market can absorb all those foreclosed properties when they hit the market in 2013. It won’t be a blip-free introduction, but it’s not going to kill the market either.

Bottom Line

Sorry for the lengthy math lesson, but it was a necessary evil. Housing isn’t bad, and housing isn’t great. Housing is just OK, which is at least better than it was a couple of years ago.

More important than any of that, however, is that housing is likely to continue improving at its tepid pace without any severe inventory-overhang worries. It might be a boring outlook, but I’ll take boring. Boring is sustainable.

Article printed from InvestorPlace Media,

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