We've been saying it for a while, and it's still true. The pace of housing recovery is terribly slow.
It's not about foreclosures, at least not directly. It's not about short-sales, again not directly. It's not about mortgage standards being higher. It's as simple as this: supply exceeds demand. Here's the telling chart:
Rental vacancy rates have come down in most communities, though they remain above what I consider normal. However, you could make a case that we entered a "new normal" with normal at nine to ten percent. I personally prefer the old normal of eight percent vacancy. (Note that this includes seasonal rentals, so normal for non-vacation rentals is lower.) The argument for a higher normal vacancy rate is that low mortgage rates (for those who qualify) justify a higher inventory.
For the "owned" category, we are still well above normal by about one percentage point. This category includes single family homes and condos. About two-thirds of all housing units are owner-occupied (or owner un-occupied, as the case may be), with one-third available for rent.
What will it take to absorb the excess supply of housing? Normally it's population growth. However, an outmigration of immigrant workers who became unemployed and returned to their home countries has slowed U.S. population growth. We're still growing, including net in-migration, but not as fast as in past years.
In addition, our ratio of housing units occupied to number of people is not as high it used to be. The dearth of jobs has sent some young people back to their parents' homes, and some couples have delayed divorce or separation because they cannot afford two homes. (Doesn't that bring a tear to your eye? Two people with a common dream–splitting up–unable to do so because of the economy.) Some of this demand would have been for rentals (especially the young people's demand), but pressure in one area of housing shows up elsewhere. If the rates on apartment and house rentals rose, then more people would consider buying rather than renting.
The key to the housing recovery is two fold. First, we need further population growth, which we'll eventually get. Second, we need enough jobs that kids and spouses can leave the nest and find their own homes. That is probably one year away, but depends critically on the pace of job creation.