Wednesday, January 31, 2007

This Empty House

The Commerce Dept. just released data on US housing vacancies. It shows that vacant houses that are up for sale only (i.e. not rental properties) jumped sharply in the 4th quarter of 2006 to an all time record (see chart). This reflects two probable factors:

a) Houses completed by builders not being sold and staying empty.
b) Owners moving to a new house (purchase or rental), but still not being able to sell their old house.

Source: US Commerce Dept.

While the increase of vacancies as a percentage of the entire housing stock may seem small, it translates to 2.1 million empty homes seeking a buyer, up from 1.56 million in the 4th quarter of 2005. The difference is a very significant 534 000 more unsold vacant homes - a 34% jump within just 12 months.

Let's look at some more data to possibly give us a clearer picture. There were 1.06 million new homes sold last year (this does not account for contract cancellations, which are not tracked - the number actually sold may be lower). Thus, there are now twice as many homes (new and old) sitting vacant awaiting a buyer as there were new homes sold in all of 2006. This ratio was just 1.3 in 2000.

At the end of 2006 builders had 170 000 homes completed and for sale (and thus "vacant"), up from 115 000 at the end of 2005. So in end-2006 non-builder homeowners accounted for 1.93 million houses vacant for sale vs. 1.44 million in 2005. The vast majority of the increase in vacancies has, therefore, come from regular homeowners and not builders.

Seems that, under the circumstances, builders did a half decent job of getting rid of the new houses they built. This means that factor (b) above may account for almost all of the jump in vacant houses currently up for sale.

The data suggests that there is a record and growing number of households that are forced to pay double mortgages, double property taxes, insurance, etc., putting extra strain on their finances. This condition does not bode well for the overall health of the real estate market and it may result in rising defaults, repossessions, forced sales and the like.

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