The Home Owner Vacancy Rate

You may have wondered why I earlier wrote about vacancy rates.

In macroeconomics, vacancy rates help facilitate micro-transactions that give rise to significant macro-effects. So, unemployment, as I explained earlier, is a type of vacancy, i.e. each unemployed person represents the vacancy of a person who can be assigned to a job.

More recently, what motivated me to write the entry on vacancy rates was a page-one article by Michael Corkery appearing on Monday, February 5, 2007 edition of The Wall Street Journal: "Vacant Homes for Sale Cloud Economic Hope: Data Pointing to Glut Are Worst in Decades; Impact of Speculators". Of course, WSJ followed this article by another on Saturday, giving advice on how to buy foreclosed homes.

Corkery's article focuses on the rise in the home owner vacancy rate, a "measure of how many homes for sale in the country are empty," which "has climbed to its highest level since the Census Bureau began tracking it four decades ago." This has occured "even after a 13% decline in new home starts in 2006," writes Corkery. The expected behavior of the speculators proves to be of great significance:

Meantime, J.P. Morgan economist Haseeb Ahmed said the overhang of vacant housing stock could erode existing home values as sellers slash prices to move their vacant properties. Economists fear that many vacant homes are owned by speculators who are stuck with investment properties that they can't sell and may be under increasing pressure to drop their prices. "We are concerned that there could be downward pressure on prices for awhile," Mr. Ahmed says ...

What's troubling is that speculators may not act like typical home sellers. When they sell their vacant home in a down market, they don't necessarily purchase another home. By contrast, people selling the homes they live in will most often buy another house -- thus fueling a healthy market of buying and selling.

Not surprisingly, buildings with five or more units -- which include condos that were magnets for speculators -- had the highest rate of vacancy. The vacancy rate among these units rose to 11% in the fourth quarter from 7% in the first quarter. For single-family homes, the vacancy rate rose to 2.3% in the fourth quarter from 1.8% in the first quarter.