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Monday, January 29, 2007

Is the High Vacancy Rate for Housing Worrisome?

There are different views on how to interpret the rising vacancy rate for housing. First, Dean Baker says we should pay attention to recent data:

Housing Vacancy Rate Hits New Record, by Dean Baker: This is another one of my preemptive strikes. Perhaps the most under-reported release of economic data is the quarterly data on housing vacancy rates... The Census Bureau just released the data for fourth quarter of 2006. This showed the vacancy rate for owner occupied housing hitting 2.7 percent. This is up 50 percent from the 1.8 percent rate of two years ago.

This is big news. The vacancy rate for ownership units has hovered near 1.5 percent for 50 years. It had never previously crossed 2.0 percent. ... In most cases, this means that an owner is paying a mortgage on a home for which they are collecting no rent. Few homeowners can afford to pay a mortgage on a house in which they don't live for very long.

This record vacancy rate is likely to mean considerably more downward pressure on house sale prices in the months ahead. It will likely mean downward pressure on rents as well, as some vacant units will eventually be put up for rent. In any case, this release from the Census Bureau is a big deal…

However, Felix Salmon at economomitor says "yes, the vacancy rate is going up, but it's going up less than you might expect":

Should we be worried by the housing vacancy rate?, by Felix Salmon: Dean Baker is alarmed at the housing vacancy rate ...

I'm not at all convinced that "in most cases" vacant housing means owners paying mortgages for which they are collecting no rent. For one thing, the numerator of the housing vacancy rate is the number of housing units "for sale only". If the units are for rent, then they go into the national vacancy rate, which is 9.8%, and which actually fell in the fourth quarter...

And for another thing, the owners of the vacant houses aren't particularly likely to be homeowners with mortgages, because a large number of the vacant houses are newly built by developers. ...

Let's look at the numbers. Between 4Q05 and 4Q06, when the housing vacancy rate increased from 2.0% to 2.7%, the number of housing units increased by 2,142,000. At the same time, the number of vacant units increased by 1,098,000. And the number of vacant units "for sale only" – which is the number used to calculate the homeowner housing vacancy rate – increased by 534,000. So yes, the vacancy rate is going up, but it's going up less than you might expect, given the huge number of new housing units which came onto the market.

Here’s Calculated Risk from December with another possible explanation for the rising vacancy rate:

NAR: Concerned Over Foreclosures, Calculated Risk: ...From NAR:

The National Association of Realtors said it is concerned over the rising rate of defaults and foreclosures …, and many Realtors believe that some families don't understand the risks of taking out "exotic" mortgages...

Foreclosures are not only a disaster for families but also for communities. Problematic loans are often made in concentrated areas, and high foreclosure rates of single-family homes can seriously threaten a neighborhood's stability and a community's well being. "Foreclosures can lead to high vacancy rates, which in turn, can cause all homes in the neighborhood to lose value," said Combs.

I don’t know these data very well, so I can’t add much. Anyone?

    Posted by on Monday, January 29, 2007 at 01:22 PM in Economics, Housing | Permalink  TrackBack (0)  Comments (19)


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