The Housing Market is Nowhere Near Bottom

Housing is what started the current mess me are in. Thanks to record low interest rates from the Federal Reserve, the US consumer went on a debt-induced home buying binge. That binge is now coming home to roost. And it's not going to let up for the foreseeable future.

Let's start with supply. First, there are a ton of existing homes on the market -- right around 4 million (charts are from Calculated Risk).

And this is before we get into the issue of foreclosures.

This translates into a little under a 10 months supply. Also note that this number -- months of supply -- has been increasing.

So -- we have a ton of supply on the market. Unfortunately that has not translated into a big enough cut in prices to stimulate demand. Here is a chart of the Case Shiller home price index.

Notice that prices increased about 90% in 6 years, yet have barely dropped in comparison to the massive run-up they had during the early 2000s. Simply put, we have a long way to go before we start seeing prices hit an inventory clearing level.

And who's going to buy these houses?

Job growth has been dropping, which is leading to

Dropping income, and

Dropping consumption. In addition, it's not like Americans can take on much more debt.

The basic economic facts are very straightforward: inventory is really high and demand is dropping. That means we can expect more price drops for the foreseeable future.