Home Real Estate More Numbers That Make Me Go Hmmm…

More Numbers That Make Me Go Hmmm…

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I dont understand these numbers!
I don't understand these numbers!

I need help. Someone explain these numbers (PDF) to me, like I’m six years old.

I mean, I think I have a pretty good education. I think I have a pretty solid record in business operations, marketing, and overall management. I think I know how to read 10-K’s and spreadsheets and so on. But these numbers have me scratching my head.

Rental vacancy rate Homeowner vacancy rate
Year Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2007 10.1 2.8
2006 9.5 9.6 9.9 9.8 2.1 2.2 2.5 2.7
2005 10.1 9.8 9.9 9.6 1.8 1.8 1.9 2.0
2004 10.4 10.2 10.1 10 1.7 1.7 1.7 1.8
2003 9.4 9.6 9.9 10.2 1.7 1.7 1.9 1.8

The Census Bureau did a study in April of 2007 on residential vacancy rates.  The real estate bubble supposedly burst in 2005.  According to this GAO study, from Q2 of 2005 to Q2 of 2007, foreclosure inventory “rose sharply” by 55%.

So… uh… where are all these people living then?

Look at from Homeowner vacancy rates from Q2 of 2005 in the chart above.  It goes from 2.2% to 2.8%. That 0.6% vacancy rate presumably means that some 1.2 million Americans lost their homes (300m population, 68.4% homeownership rate, then 0.6% of that number in additional foreclosures).

Meanwhile, the rental vacancy rate goes from 9.6% to 10.1%?  And it went up every single quarter since Q2 of 2005?

Three possible explanations:

1.  Foreclosures were happening for the most part on investment properties.  Those people who owned foreclosed homes have primary residences; they just walked away from their “quick flip” properties, having lost a bundle of money.  But they are not homeless and do not need an apartment.

If true, then the whole “homeowner rescue” legislation is a crock of steaming dung.  “Speculator rescue” is more like it.

2.  Developers built so many rental units from 2005 to 2007 that despite the increased demand, vacancy rates went up.

One would think one might have heard a thing or two about this.

3.  There are now legions of homeless people on the streets of America.

One would think one might have heard about an additional million homeless people.

So which is it?  Or is this the magical mystery vacancy rate number?

-rsh

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Rob Hahn
Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

2 COMMENTS

  1. I think the correct answer is (1) with a sprinkle of (2). I also think you are seeing the amount because many investors where buying the homes as “owner occupied” properties so they would show up in these vacancy rates in “homeowner” properties.

    Regarding… ““homeowner rescue”. I 100% agree with you. The main reason why it won’t work is that fact that most people cannot actually afford the homes they purchased. This was due to the stated income loans that gave homebuyers the ability to get themselves into debt way above their means. It wasn’t an issue when property values where increasing as the homeowner could sell (at a profit) before they were in trouble or any mortgage lates where reported. So even if you provide the ability to get a loan with these rescue plans, the average don’t qualify due to debt to income ratios.

    Due to permanent nature of blogs, a fun excercise is to sometimes look at old blog posts like this: http://www.mortgage-info.com/blog/2006/12/possible-end-of-stated-income.html to see if items discussed actually came true.

    Another interesting point is during this same time one of the common arguments for continued increases in home prices was due to limited supply of housing… which this data would seem to refute.

    The rear view mirror is always clearer than the windshield 🙂

  2. I think the correct answer is (1) with a sprinkle of (2). I also think you are seeing the amount because many investors where buying the homes as “owner occupied” properties so they would show up in these vacancy rates in “homeowner” properties.

    Regarding… ““homeowner rescue”. I 100% agree with you. The main reason why it won’t work is that fact that most people cannot actually afford the homes they purchased. This was due to the stated income loans that gave homebuyers the ability to get themselves into debt way above their means. It wasn’t an issue when property values where increasing as the homeowner could sell (at a profit) before they were in trouble or any mortgage lates where reported. So even if you provide the ability to get a loan with these rescue plans, the average don’t qualify due to debt to income ratios.

    Due to permanent nature of blogs, a fun excercise is to sometimes look at old blog posts like this: http://www.mortgage-info.com/blog/2006/12/possible-end-of-stated-income.html to see if items discussed actually came true.

    Another interesting point is during this same time one of the common arguments for continued increases in home prices was due to limited supply of housing… which this data would seem to refute.

    The rear view mirror is always clearer than the windshield 🙂

Comments are closed.