Thursday, February 8, 2007

Alarming rates of housing vacancy

The national homeowner vacancy rate has reached 2.7% in 2006, up from 2.0 in 2005, reported the Census Bureau. This is the highest level on record in four decades, the number of vacant homes for sale reaching 2.1 million in the final quarter of 2006. The excess in supply continues to grow and may result in price decreases. After a 13% decline in new home starts in 2006, new construction will have to be reduced further in 2007, as sellers struggle to sell vacant homes.

This news may mean that the housing rebound economists have been hoping for is not yet in sight. The market has shown some signs of stabilization in the past weeks, with sales marking a slight increase and the numbers of unsold houses declining. However, the latter numbers may have been due to home owners temporarily retreating from the market in hope for better prices in the future rather than diminishing inventories. As production is cut down and properties are converted to rentals, vacancy rates are likely to go down in the months to come.

The high demand for new homes in recent years was mostly due to speculative activity and as investors leave the market, the demand drops, leaving new houses unsold. In a normal market the number of homes sold is essentially equal to that of homes bought, because owners sell their residential property and purchase another house to live in. A speculator-driven market does not operate this way: when vacant homes are sold, this doesn’t necessarily lead to another purchase. The condo market, which saw some of the highest speculator activity, faced even graver consequences, with vacancy rising from 7% in the first quarter of 2006 to 11% in the third.

Vacancy numbers have varied throughout the country, ranging from 3.0% in the South, to 2.0% in the Northeast. The housing market has presented a number of surprises lately and analysts find it hard to predict how exactly the current situation will be resolved.

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