Interest Rate Roundup

Friday, April 27, 2007

Housing, rental vacancy rates climb again

Every quarter, the Census Bureau reports data (PDF link) on housing and rental vacancy rates. These key indicators measure the underlying health of the housing and rental markets. In the first quarter ...

* The homeowner vacancy rate, which measures the percentage of homes for sale that are sitting empty, climbed again. It rose to 2.8% in Q1 2007 from 2.7% in Q4 2006 and 2.1% a year earlier.

This is a fresh record high for the series. The increase we're seeing is a clear side effect of all the real estate speculation in recent years. Investors snapped up tons of condos, townhomes, and single-family houses during the boom. They are now trying to unload many of these unoccupied, excess homes.

The elevated vacancy rate should keep the pressure on home prices. After all, if you're trying to sell an empty house you don't live in, you're going to be a more motivated seller. You're going to price it lower just to move the darn thing, rather than keep the price high and get stuck paying the mortgage and other expenses for months on end.

* The rental vacancy rate also popped up -- to 10.1% in Q1 2007 from 9.8% in Q4 2006 and 9.5% a year earlier. This indicator measures what percentage of the nation's stock of rental property is sitting empty. It hasn't been higher than this since Q2 2004.

I believe this, too, is a side effect of the housing bust. Many investors who planned to buy and flip property haven't been able to sell. So they're dumping those properties on the rental market to cover their cash flow losses. This should help to suppress growth in rental rates.

* Lastly, the nation's homeownership rate dropped to 68.6% in Q1 2007. That's the lowest level since Q4 2003. Low affordability and tighter mortgage standards are to blame here.


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