On Friday the Census Bureau released its report of vacancy rates and homeownership. According to Reuters:
The share of U.S. homes owned but empty rose for the 10th straight quarter at the end of March to a record 2.8 percent, the Census Bureau said Friday.
The number has been steadily climbing since the fourth quarter of 2004 when it was at 1.8 percent and indicates a housing market bloated with speculators, said William O’Donnell, head U.S. government bond strategist at UBS Securities LLC in Stamford, Connecticut.
What is most striking is the rise in vacant properties that are for sale:
There were a record 2.18 million homes for sale in the first quarter, which were not occupied, up 4 percent from the record levels seen in the fourth quarter, and up 38 percent from year earlier levels.
Not only did the number of properties that were for sale increae, but the number of properties for rent increased as well. The number of vacant rental properties increased YOY from 3.69 million units in the first quarter of 2006 to 4.0 million units in the first quarter of 2007, for a 7.3% increase. The rental vacancy rate rose from 9.5% in the first quarter of 2006 to 10.1% in the first quarter of 2007.
Bankrate’s 2007 Overview Stated:
When April and May come around, construction crews will get a chance to resume work on ongoing projects — potentially dumping even more inventory on saturated housing markets.
But Seiders [David Seiders, chief economist of the NAHB] says he is confident that won’t happen. That’s because when the market flattened out late last year, the nation was enjoying an unseasonably warm early winter. Had builders wanted to resume work, they could have taken that opportunity to do so. "So, I think it was a true bottom," he says.
If the sales have truly bottomed, the next step is to watch as consumers continue to whittle down the inventory.
It appears that consumers have a lot of vacant inventory to whittle on, the percentage of people who are out there "whittling" is declining- with home ownership rates at their lowest point since the third quarter of 2003.
Wow.
Prior to this downturn, the highest vacancy rate EVER seen was 2%. That record goes all the way back to 1956 when the Census Buerau first started tracking this metric.
So now we’re at 2.8%, a full 40% higher than the old record. And judging by the rate this figure is growing, 3% may be in the cards for 2007.
Twist,
I have been reading your blog for the last 4 months. I discovered it while looking for an investment/second home in the areas of Gilbert, Chandler, Queen Creek or Florence(the new Del Webb).
In Jan. I discovered that mls was 42,000. that is when I became a sideliner. Now it is 52,500 with many of the houses empty.
I think it will take at least 18 months of price decreases to shake it all out. It may have to go down 30% to a level where a rent could cover a mortgage payment.
Investors will have to look at income this time versus flipping before they will buy.
Currently their are not enough families in the area to fill these empty homes as the inventory was motivated by flipping and builder specs not a family’s need for a house.
Filling these houses will take some time.
I asked my California relatives what will happen to California people who lose their house and they said they will move to Arizona. So that may help.
I have relatives in Gilbert and Chandler so I will buy a house eventualy but I am not in a rush. Although Del Webb at Merril Ranch would seem like it could go much lower.
thanks
Bart
twist (off topic) -
If I’m reading the following right, the financial services industry has been ripping off Joe Sixpack royally. The good news, then, would be that we can “bail out” a lot of the subprime borrowers by putting them into the conforming loans they should have had in the first place!
“Ranieri on the MBS Market: It’s Broke”, by Tanta, CalculatedRisk blog, April 28, 2007.
twist (continuing with the OT) -
The following baffle-gab is also from the Ranieri transcript. Remember all my babbling about QSPEs and SFAS 140? Well here’s where the rubber really hits the road. As soon as the bondholders start unwinding all those structured finance vehicles so that the borrowers can re-finance into a sane mortgage, the vehicles don’t qualify (that’s the magic “Q” in the quote) for sales accounting treatment, and a lot of assets start migrating back onto (or off) counter-parties’ balance sheets — meaning they could suddenly be undercapitalized.
Here’s the Reader’s Digest version of the above … “Prepare to Panic!”
Bart-
I’m always happy to hear when people are being cautious. There are still people out there making money in real estate at the moment, but they are more sophisticated investors than I am. I think there are also a bunch of people out there losing money at the moment, so I like erring on the side of caution. With over 7,000 rentals in the Valley and 52,000 properties for sale, I figure there’s no need to rush into anything.
Arizona has been a source of more affordable housing for Californians for years. After my father graduated from UCLA, my parent’s theory was they would move temporarily to the Phoenix area and save up enough money to move to the Palo Alto area. They didn’t think they’d like AZ, but housing in CA was too expensive. Dad retired from his job in Scottsdale a few years back- I guess we’re not going back at this point. : )
Wow. is right.
However, its not terribly suprising considering the amount of people that purchased homes with this attitude; “if I can’t sell it, I’ll rent it.”
I counted rental ads on craigslist in Phoenix about a week ago. There were 600 ads placed in one day! It the same down here in Tucson, just not on that scale. I’m not sure how many were repeats but the number was crazy none the less.
Now may be a great time to buy, but 6 months to a year will be even better…
John-
I read a thread on Broker’s Outpost not too long ago where some of the brokers were talking about how they are going to have to learn to do FHA loans- too many went with what was easy, and what they knew.
A lot of people trusted their broker to get them the best possible deal. The trouble was, in their mind, the best deal was the maximum house for the minimum payment, without looking too closely at the details.
The transcript mentioned the problem of not only the subprime borrower, but middle-class borrowers who went out and got too much house. They managed the teaser rates, but can’t handle the resets.
It seems that the question of Is the system broken? is one of the few easy questions to answer in this mess- the answer is “yes.”
Hey guys this is the email I sent the Realtor I had looking for me. I’m waiting this out… let me know what you think:
(If you want I’ll post his reply.)
——————–
Hi xxxxx -
I’m going to pull my name out of the hat for now. I’m going to wait until the end of the year to start looking seriously again. The market is still way overpriced and it will be until prices revert to the historical mean.
In my opinion, homes should be priced around 1998 prices with 3 – 5 percent per year growth. I’ll start looking when I see more sensible numbers. A stucco box with a neighbor 5 feet away is not worth 250k to me.
I see nothing but hard facts from the FED, Freddie Mac, Fannie Mae, Census dept., NAR, NAHB, and many other credible sources that suggest we have a LONG way to go before prices stabalize. None of those sources mentioned, with the exception of NAR, predict a growth in real estate this year with many saying Q2 – Q3 in 2008 before flat growth. The prediction from the NAR is a joke anyway. Especially considering they have been predicting an uptick for the last 3 quarters and then revising the predictions under David Lereah. For more on Lereah check this out:
http://davidlereahwatch.blogspot.com/
It would be foolish for me to buy a depreciating asset right now. The
Tucson market can’t sustain the price people are currently seeking for their homes. The wage and job data absolutely don’t support 200K+ homes without an exotic mortgage of some flavor, and the lending standards are getting even tighter. With more than 10K and 55K homes on the market in Tucson and Phoenix respectively, we have a lot of supply to burn.
This all suggests that I can comfortably wait 8 to 10 months or more
(depending on how fast the market falls) until the supply overhang comes back in line with demand. I welcome the signs of increased interest rates as I will only be saddled with a high interest rate, based on the historical averages, for a few years and I can refi when they come down. In comparison with buying an over priced home at a low interest rate and being stuck with the inflated and unrealistic price for the duration of my ownership.
Thank you for your help thus far. I’m sorry for any inconvenience.
//signed
FYI – I get a lot of data from these blogs:
http://calculatedrisk.blogspot.com/
http://housingdoom.com
Just in, “We Hit Bottom Today”.
Sure the numbers all point to further declines and while I have no hard data to prove that this, I will say it has defiantly stabled out. I will say that our research has indicated that we are at the bottom of the housing cycle, I can’t actually show you any data that says that except MoM when last month is revised downward and this month is most likely inflated and will be revised downward next month. Rest assured we are at bottom.
Now go out there and buy houses! What is the problem we know you have jobs! The economy just hit 13,000 and it “Very Strong” so why aren’t you buying houses!?! For the love of god buy up some of this inventory the prices will never be any lower, no really we mean it this time. The interest rates are still at historic lows so you renters should be buy homes like mad, I don’t know what is the matter with you, are you just stupid or do you like burning money on rent!?! Go buy the houses now! I’m ordering you to, there is no reason to wait around any longer, you made your point, and prices dropped by 2% now go buy a dam house, buy two in fact, just in case you need a spare.
Sincerely
US Economy
PS: By the way from 2005-2006 the economy was strong, employment high and interest rates where “at historically low levels”, then why did the housing market take a dive during that time? If you can answer this you will know why we are nowhere near bottom.
Roger (uh, I mean US Economy) -
But how will we ever know that the bottom is in, now that NAR has transferred Lereah to their new Move Inc subsidiary, which sounds like their outplacement department. [you can't make this stuff up]
-John
Good point. We should have poll, how long until “the new guy” calls bottom. I would guess he will make a claim that we hit bottom during his inaugural address (I presume the first speech he makes is called an inaugural address). Who knows he might surprise us and make it two months into his tenure. I believe that all the top guys at the NAR are on the same page so regardless of whom “the new guy” is he will sound just like David.
-Roger
PS: Their job is not to dispense the truth; it is to grow the housing market.
Hmmm-
It looks like the NAR is in an “Out with the old, in with the new” state of mind. As of today, they have changed the look of their home page as well at Realtor.com.
I don’t know about you guys, but I have found in my area that we are typically 3 to 4 months delayed in the market.
Meaning that our percentages don’t react until this delay occurs. Is this typical in the midwest have you found?
I am from Cape Girardeau Missouri. You can find the homes in the market or the homes for sale in cape girardeau here. [guessed at the link, jm]
lsample20 -
You didn’t put in a link, so I googled and guessed from your title. Feel free to post the link you meant if I guessed wrong.