High Vacancy Rates Continue To Drag Down US Real Estate Market
There are many things that are currently conspiring to drive down the US housing market.
Tightening credit markets have made it harder to get approved for a mortgage.
A weak labor market has people apprehensive about plunking down their hard-earned dollars for a new home.
The biggest problem though is the overwhelming amount of inventory that is currently on the market.
When the real estate market in the United States ignited post 9-11, there was an understandable rush to build new homes, apartments and condominiums.
Inventory was getting snapped up by investors with an insatiable appetite for real estate. Home values were increasing seemingly by the day, and everyone wanted to get in on the action.
The real estate market then fell to the earth with a thud, and the American landscape was littered with unfinished and unwanted new projects.
Foreclosures spiked in the weeks, months and years following the collapse of the real estate market. Banks were finding it very hard to move this inventory, and many homes sat vacant as banks and other lenders scrambled to find buyers.
The biggest problem currently facing the US real estate market is clearly laid out by Harvard University's Joint Center for Housing Studies.
They claim that 1 in 9 US homes are currently sitting vacant.
If you add vacation and seasonal homes to the mix (these aren't included in the 1 in 9 homes figure), then the total vacancy rate can shoot as high as 15%. This compares to an 11% vacancy rate in 1991.
A few more alarming numbers that were released include:
-3% of owned homes are vacant
-more than 9% of new homes built since 2000 are currently sitting vacant
-homes priced over $500,000 are just as likely to be vacant as ones that cost less than $100,000
So what can we learn from this information?
1. The real estate market will never recover until these vacancy numbers begin to drop.
2. Large numbers of vacant homes are no longer just found in low-income communities.
3. Investors are not at all willing to jump into the market and snatch up these vacant properties.
4. There is a huge glut of new homes on the market.
Large numbers of vacant homes cause a vast array of problems, including:
-increased crime (squatters, vandals, etc)
-increased costs (someone has to maintain these homes or else they will fall into disrepair and drag down home values in the area)
-dropping home values in the area
-decreased tax revenues
I'm not really sure that there is a solution to this problem.
The government can try to keep people in their home using various initiatives, but they also can't force people to buy the homes that are currently sitting vacant.
In any situation where supply exceeds demand, prices need to drop in order for demand to pick up.
The US housing market is likely to be no different, which is why some experts are forecasting a continued drop in home values.
Source: USAToday.com - No one home: 1 in 9 Housing Units Vacant
Filed under: The Economic Meltdown