Archive for the ‘Private Residential Fixed Investment – PRFI’ Category

Whatever happened to the housing crisis? … Hint: It’s still there.

August 27, 2012

Remember the hysteria around dropping home values, slow real estate sales, and frenetic foreclosure rates?  All legit concerns.

May be my selective attention, but I don’t hear much about the housing crisis these days.

Maybe because deeply depressed prices have stopped sliding.

Maybe because all of the government’s silver-bullet programs have failed to move the needle.

Hmmm.

Reality: still a big overhang from the housing bubble needs to be absorbed.

Here’s a rough calibration of the problem, based on the below Fed chart.

Before the bubble. people were putting about $450 billion per quarter into Private Residential Fixed Investment, i.e. houses.

Eyeballing the chart, during the period 2001 and 3009, PRFI averaged about $650 billion per quarter… about $200 billion per quarter over “normal”.

$200 billion times 36 quarters = $7.2 Trillion in excess … or “overhang”.

In the past 3 years, we’ve been running about $100 billion below the pre-bubble “normal” … in effect, absorbing about $1.2 trillion of the overhang (12 quarters times $100 billion).

Bottom line: still have over 80% of the bubble to absorb.

Ouch

image

When the subject comes up again — and it will — remember to revisit my longstanding idea for unleashing private capital to buoy the housing market. It doesn’t cure the overhang problem, but provides some price relief and liquidity to the market.

>> Latest Posts