Friday, February 24, 2012

Lawler: Declining Inventory of Existing Homes for Sale: Don’t Forget Conversion to Rentals

by Bill McBride on 2/24/2012 03:16:00 PM

CR Note: Yesterday I posted some thoughts on the sharp decline in listed inventory. Here are some additional comments from housing economist Tom Lawler:

While there has been a lot of discussion among analysts on the reasons behind the “stunning” plunge in existing SF homes listed for sale over the past several years, few have mentioned what appears to have been a substantial increase in the number of SF homes purchased by investors with the explicit intention to rent the homes out for several years. One reason, of course, is that there are not good, reliable, and timely statistics on the number of SF homes rented out, much less any data at all on the intended holding-period of folks renting out SF homes. There are, of course, lots of anecdotal stories about a surge in the number of investors (including LLCs, hedge funds, etc.) buying SF properties, especially REO properties, because of attractive rental yields; there are some data from local MLS on leasing activity showing a surge in the past several years; and there are certainly surveys pointing not just to an increase in investor buying of homes, but a rise in the cash share of investors purchases over the past several years. But there is a dearth of actual data.

Data from the ACS does suggest that the share of occupied SF detached homes that were occupied by renters increased rather dramatically in the latter part of last decade, The below table is based on decennial Census data for 2000, and the 5-year, 3-year, and 1-year estimates from the ACS for 2006-10, 2008-10, and 2010.

While last year there was a drop in completed foreclosures, there was no corresponding drop in the sales of REO properties, many of which were to investors not planning to “flip” properties, but to rent them out. Short sales also increased last year, and anecdotal evidence suggests that a non-trivial share were to investors looking to rent the properties out. I’d guess that the 2011 data will suggest that the share of occupied SF detached homes occupied by renters will come in at around 16%.

Net, a not insignificant share of the decline in the share of homes for sale reflects the acquisition of SF (and condo) properties by investors as multi-year rental properties.

Percent of Occupied Single Family Detached Homes Occupied by Renters
 20002006-07 Avg.2008-09 Avg.2010
US13.2%12.8%14.3%15.1%
Maricopa County10.4%13.5%16.8%19.8%
Clark County12.5%18.2%22.0%24.4%
Sacramento County18.8%16.7%20.2%22.4%
Lee County10.6%12.3%14.6%17.3%