Home Prices Fall Below January 2000 Levels in Some Major U.S. Cities; 13 Percent of All U.S. Homes are Vacant

Housing Market: 13% of All U.S. Homes are Vacant

March 28, 2011

CNN - High residential vacancies are killing many housing markets, as foreclosed homes sit on the market and depress sale prices and property values.

And it's only getting worse: The national vacancy rate crept up to just over 13% according to last week's decennial census report. That's up from 12.1% in 2007.

"More vacant homes equal more downward pressure on home prices," said Brad Hunter, chief economist for Metrostudy, a real estate information provider.

Maine had the highest proportion of empty housing stock, at 22.8%. Other states with gluts of empty houses included Vermont (20.5%), Florida (17.5%), Arizona (16.3%) and Alaska (15.9%).

The way the census calculates the vacancy rates, however, is problematic. It includes properties such as ski lodges, beach houses and pied-à-terres that many real estate statisticians would not.

These are often summer homes or second homes, but census lumps them together with homes that have been sold but not occupied, empty homes for sale or rent, and homes used by migrant workers. Basically, anything other than a primary residence is considered vacant.

"You can only live in one home," said William Chapin of the Census Bureau's Housing Statistics Branch. "If you own five homes that you occasionally live in, four of them will be counted as vacant."

But Paul Bishop, the vice president for research for the National Association of Realtors, countered that these properties aren't vacant in the usual sense of the term.

"A vacation home is hardly the same situation as a foreclosed home that has been taken back by the bank," he said.

In Maine, more than two-thirds of the 160,000 vacancies were vacation homes in 2009; Vermont had a similarly high concentration.

Compare them with Connecticut, which has a vacancy rate of just 7.9%, the lowest of all the states. If you back out the vacation properties from the statistics, the states have very similar vacancy rates: 6.1% for Connecticut and 7% for Maine.

Some states have high vacancy rates even after backing out the second homes: Florida's is about 10%; Arizona's is 10.7%; and Nevada's 11.4%.

Besides Connecticut, the other states with lowest vacancy rates are California, Iowa, Illinois, Virginia and Washington, all at 9.2% or lower.

Home Prices Falling in Most Major U.S. Cities

March 29, 2011

AP - Home prices are falling in most major U.S. cities, and the average prices in four of them are at their lowest point in 11 years. Analysts expect further prices declines in most cities in the coming months.

The Standard & Poor's/Case-Shiller index released Tuesday shows home prices dropped in 19 cities from December to January. Eleven of them are at their lowest level since the housing bust, in 2006 and 2007. The index fell for the sixth straight month.

Home values in Atlanta, Las Vegas, Detroit and Cleveland are now below January 2000 levels. A majority of the metro areas tracked by the index now have home prices at levels dating back to 2003, just as the housing boom began.

The only market where prices rose was Washington [Editor's Note: This increase should be attributed to the over-compensated and very large federal workforce in the area], where homes prices gained 0.1 percent month over month.

"The housing market recession is not yet over, and none of the statistics are indicating any form of sustained recovery," said David M. Blitzer, chairman of the Index Committee at Standard & Poor's.

The housing market remains the heaviest burden on the economy, which is showing signs of strength elsewhere. Unemployment benefit applications are at pre-recession lows, consumers are spending more money and manufacturing activity is growing at its fastest rate in seven years.

By contrast, the housing market is coming off its worst year in more than a decade for sales of previously occupied homes and its worst in a half-century for sales of new homes.

High unemployment and tighter lending requirements have kept many people from entering the market. A record number of foreclosures and short sales — when the lender agrees to accept less than what the buyer owes on the mortgage — are pulling down home values. Many would-be buyers are waiting on the sidelines, fearing that the market has yet to bottom out.

"A lot of people are thinking the best thing to do is to stay put or delay until conditions improve," said Jonathan Basile, economist at Credit Suisse Securities.

The pain is not uniform. It is worse in cities flooded by foreclosures and short sales. That includes Detroit and Cleveland, which are struggling with weak local economies. Miami, Phoenix, Las Vegas and Atlanta are reeling from overbuilding during the housing boom.

"Some people who want to buy don't have the time, desire or energy to fix up a foreclosure, so they don't buy them," said Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors Inc. in Miami, where foreclosures or short sales make up two-thirds of the homes sold.

San Diego was the only city besides Washington to show year-over-year gains in home prices, although prices there rose only a scant 0.1 percent.

Washington has stood out for its success in the otherwise tough market. Home prices in the nation's capital are up 3.6 percent year over year and have risen nearly 11 percent since they bottomed out in March 2009. And among the 20 cities, prices there have held up the best since 2000, appreciating almost 84 percent.

The Case-Shiller report measures home price increases and decreases relative to prices in January 2000 and gives an updated three-month average for the metropolitan areas it looks at.

When Did the Housing Bubble Begin?

According to the BubbleMeter Blog:

I spotted the housing bubble in spring of 2001, so I think people who claim it began later than that are fools. Anybody who looks at Robert Shiller's graph of house prices can easily see that the uptrend in real housing prices began in 1997-1998. We were in clear bubble territory by the end of 2000. Rather than blaming it on politicians, the strongest argument coming from economists is that the bubble was caused by a global savings glut that began in the late 1990s.

Here's my graph of nominal and inflation-adjusted housing prices since 1970. Look for yourself. When do you think the housing bubble began? (Click on the graph to see the full-sized version.)

Tom Lawler, an independent economist who worked at Fannie Mae from 1984 to 2006, says few housing gurus think the bubble began as early as 1997. In his view, the bubble began around 2002. The collapse of the tech-stock bubble in the year 2000 prompted many people, searching for other types of investments, to focus on real estate.

According to iTulip in 2002:

The list of rationalizations of recent residential real estate price increases usually carted out are as follows.

Low interest rates. These have made homes seem more affordable, despite the increase in prices.

Tight supply. The number of new homes for sale now is lower than it was at the Nasdaq's peak in March 2000.

Aggressive mortgage lending. Lenders have loosened credit standards in recent years, allowing borrowers with relatively high levels of debt to get loans. Borrowers can also make much smaller down payments, in some cases as little as 3%, compared with the more customary 10% to 20% of years past.

Shift in investment strategies. Many Americans, spooked by the stock market over the past year, appear to be shifting money into residential real estate. One indication is that average down payments have actually increased in the past two years, suggesting that many of the buyers are people with large sums of money that they previously would have put into the stock market. In June, according to Economy.com, the average down payment was $34,700, up from $30,500 last June and $28,700 in June 1999.

These factors beg the question, are home prices too high? Phrased another way, are households purchasing homes they cannot afford?