August 2012 Economic and Housing Market Outlook

According to the U.S. Economic and Housing Market Outlook for August released recently from Freddie Mac, the so-called shadow inventory might not be as foreboding as many thought. This is largely attributed to the rate at which excess housing is being absorbed.

Other highlights from the Outlook include:

•The Freddie Mac House Price Index for the U.S. showed a 4.8 percent gain from March to June 2012, the largest quarterly pickup in eight years; the national index posted a June-to-June rise of 1 percent, the largest annual appreciation since November 2006.

•Rental vacancy rates have fallen to 8.6 percent, the lowest since the second quarter of 2002. The for-sale vacancy rate has dipped to 2.1 percent, the least since the second quarter of 2006.

•Nationally, the for-rent market now appears to be in relatively good balance, with the rental stock close to overall rental demand, resulting in “normal” vacancy levels.

•This continuing shrinkage in excess vacant stock is important because it means that in most markets, the REO homes on the for-sale market are not competing with an oversized vacant housing inventory.

•Even if national indexes dip in the seasonally weak autumn and winter months, the declines probably won’t be big enough to erase the good second-quarter news on home values.

•According to Frank Nothaft, Freddie Mac, vice president and chief economist, “While the shadow inventory persists, there is an important difference in today’s market compared with those of recent years and that’s the substantially reduced amount of excess vacant housing. The housing recovery may finally be coming out from the shadows.”

Source: Freddie Mac