Tuesday, April 29, 2008

Homeownership and Vacancy Rates

by Bill McBride on 4/29/2008 06:04:00 PM

Yesterday the Census Bureau reported the homeownership and vacancy rates for Q1 2008. Here are a few graphs and some analysis ...

Homeownership Rate Click on graph for larger image.

The homeownership rate is now back to the levels of the summer of 2001. Note: graph starts at 60% to better show the change.

The declining homeownership rate shows the huge drag on the housing market of the shift - at the margin - of households moving from ownership to renting.

The homeownership vacancy rate increased to a record 2.9% (from 2.8% in Q3).

The second graph shows the homeowner vacancy rate since 1956. A normal rate for recent years appears to be about 1.7%. There is some noise in the series, quarter to quarter, so perhaps the vacancy rate has stabilized in the 2.7% to 2.9% range.

Homeownership Vacancy RateStill this leaves the homeowner vacancy rate almost 1.2% above normal, and with approximately 75 million homeowner occupied homes; this gives about 900 thousand excess vacant homes.

The rental vacancy rate increased to 10.1% in Q1 2008, from 9.6% in Q4. The rental vacancy rate had been trending down slightly for almost 3 years (with some noise).

It's hard to define a "normal" rental vacancy rate based on the historical series, but we can probably expect the rate to trend back towards 8%. According to the Census Bureau there are 35.7 million rental units in the U.S. If the rental vacancy rate declined from 10.1% to 8%, there would be 2.1% X 35.7 million units or about 750,000 units absorbed.

This would suggest there are about 750 thousand excess rental units in the U.S. that need to be absorbed.

Rental Vacancy RateThere are also approximately 200 thousand to 250 thousand excess new homes above the normal inventory level (for home builders).

If we add this up, 750 thousand excess rental units, 900 thousand excess vacant homes, and 200 thousand excess new home inventory, this gives 1.85 million excess housing units in the U.S. that need to be absorbed over the next few years. (Note: this data is noisy, so it's hard to compare numbers quarter to quarter, but this is probably a reasonable approximation).

These excess units will keep pressure on housing starts and prices for some time.