Home Economics: Housing bust sent vacancy and homeownership in opposite directions

TIM LEE / The News & Observer (Raliegh, N.C.)
TIM LEE / The News & Observer (Raliegh, N.C.)
Posted: August 11, 2012

Since boom turned to bust in 2006-07, the housing vacancy rate has skyrocketed to levels not seen since the Great Depression.

With the rise in the number of vacant dwellings came a decline in the homeownership rate, which peaked at 69.2 percent in June 2004 and tumbled to a 15-year low of 65.5 percent in the first quarter of 2012, according to the Census Bureau.

The chief cause of both, of course, has been the record rate of foreclosures - from 500,000 filings in 2005 (considered a normal year, according to the search engine RealtyTrac), to 2.7 million in 2011.

The unprecedented foreclosure rate and resulting lender repossessions of properties slashed home prices by more than one-third nationally, according to the S&P Case-Shiller Home Price Index, and by as much as 70 percent in the hardest-hit foreclosure states.

In 2000, census data show, the median asking sales price for a single-family dwelling was $90,400. The asking price peaked in 2007 at $187,600. In the second quarter of 2012, after nearly five years of steady declines, it was $134,600.

To put it another way, although prices remain above where they were at the start of the decade of housing boom or bust, they have fallen to exactly where they were in the second quarter of 2005.

These are prices that sellers are asking buyers to pay. The median sale price in a vast number of cases has been less than what the seller wanted. Even if buyers were willing to pay, more than one-third of all sales agreements as of the first quarter of 2012 were falling through because appraisals were lower than the offers.

Perhaps, however, a turnaround is under way. The second-quarter number showed an ever-so-slight increase from the first - about $900 - although it was $4,200 less than the same three months of 2011.

The vacancy rate, too, is showing signs of getting smaller, according to an analysis of U.S. Postal Service data, which, maintains Trulia, the real-estate search engine, provides more current local data than the Census Bureau.

The Postal Service data show the number of addresses that are receiving mail. In the middle of July, 5 percent more housing units were receiving mail than had been in the same month in 2011.

The data show that the number of occupied housing units, meaning those receiving mail, increased by 970,000 from mid-July 2011 to mid-July 2012

Typically, addresses are considered vacant 90 days after mail delivery to that address ends. Seasonal or vacation homes are not counted as vacant. Post office boxes were excluded.

Vacancies have declined in 90 of the 100 largest metropolitan areas, the data show.

"Vacancies are dropping in overbuilt markets like Las Vegas and Phoenix, and that's a good thing," said Jed Kolko, Trulia's chief economist.

Vacancies also are declining, however, in markets that were already very tight, such as San Jose - the largest downward movement nationally with a 24.1 percent drop - and Los Angeles, contributing to limited inventory and lower sales, Kolko said.

The United States has both housing glut and shortage, Kolko said.

Vacancy rates are "stubbornly high" at 12 percent in Detroit and in several metropolitan areas in Ohio and Florida, with more than 6 percent, Kolko said.

At the same time, coastal California and big northeastern metropolitan areas have vacancy rates under 2 percent, the Postal Service data show.

The Philadelphia metro area is an exception, however, with a vacancy rate of 2.7 percent, Kolko said. It is down from July 2011's 2.8 percent.

Existing-home sales, while improving, remain well below normal levels, data from Prudential Fox & Roach HomExpert say and Econsult Corp. economist Kevin Gillen affirms.

Vacancies drop when the number of households grows faster than the number of housing units, Kolko said. The change in the number of households is closely related to employment growth, and the change in the number of housing units is driven primarily by construction.

So, the highest decline in vacancies comes in markets with strong employment growth, as well as in areas in which construction is below normal levels and inventory for sale has declined.

Vacancies rose in markets with slower job growth, such as Akron, Ohio - the highest year-over-year increase at 5.1 percent - Providence, R.I., and Milwaukee.

So the inventory shortages that appear to have been short-circuiting existing-home sale recovery in the last two months are real rather than an excuse.

"Buyer interest remains strong but fewer home listings mean fewer contract-signing opportunities," said Lawrence Yun, chief economist for the National Association of Realtors, said in releasing the group's June report on agreements of sale, which showed a decline of 1.4 percent from May.

"We've been seeing a steady decline in the level of housing inventory, which is most pronounced in the lower price ranges popular with first-time buyers and investors," Yun said.

Lower price ranges appears to mean bank-owned repossessions through foreclosure, which has sustained existing-home sales in California and other hard-hit areas

Investors paying all cash have dominated sales in many of these markets for several years. Competition from these low-price dwellings, as well as tight credit, have restricted reduced new-home construction to levels that have made economists fearful that the time will come when there isn't enough inventory to sustain growth.

In addition, a sputtering economy has kept many younger buyers in rental housing or with their parents, reducing household formations.

"A real housing-market recovery needs household growth and construction to stay in balance, not just nationally, but in each local market," Trulia's Kolko.


Contact Alan J. Heavens at 215-854-2472, aheavens@phillynews.com or @alheavens at Twitter.

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