Vacancies Soar / Lending Standards Rise

The US Dept of Commerce released the Report on Residential Vacancies and Homeownership on January 29th.

The report shows national vacancy rates in the fourth quarter 2006 were 9.8 percent for rental housing and 2.7 percent for homeowner housing. A couple of charts better describes what is actually happening.

Homeowner Vacancy Rates



The above chart thanks to Empty Homes Everywhere by Mike Larson.

The following chart is from the Census Bureau.
The last two columns were added by me.

Total US Housing Inventory



A whopping 13% of housing inventory is currently vacant. The rate seems to be increasing at a fairly rapid clip as well. For those who think commercial and/or multifamily construction will pick up where individual residential home sales left off, please take a look at rental vacancies sitting at a 9.8%.

According to the Census Bureau ...
There were an estimated 126.7 million housing units in the United States in the fourth quarter 2006. Approximately 109.9 million housing units were occupied: 75.8 million by owners and 34.2 million by renters. Both the number of owner-occupied units and the number of renter-occupied units were higher than a year ago.

Approximately 1.67 16.7 million homes are sitting vacant in the US (also shown in the above chart). Mammoth supply is being added right as I type as evidenced by all of the homebuilding still going on, and all of the condo towers etc that are still under construction. [Mish note: typo corrected]

Inquiring minds might be asking "Who is going to be buying those homes?".

Lending Standards

Following is an email from a mortgage broker that I received just last week. He wishes to remain anonymous. Today seems to be a good day to post it.

Mish,

Here is the start of lenders getting more conservative when it comes to declining markets. This is Wells Fargo's new policy. This will mean any property in an area that is listed on their declining value list or the appraiser has noted it on the appraisal, the LTV (loan to value) will be cut by 5%. So in reality, if a property has been appraised at $500K and the borrower wants 100% financing the most he will get will be 95% LTV or less depending on the underwriter.

$500K - 5% is $475K a decline of $25K per loan amount on the minimum. Think of the borrowers that are already at 100%? I believe most if not all of San Diego County should be in the declining list. With this as well as appraisers having a hard time bringing in values as well as being very nervous not to push values anymore, there will be a lot of upside down people.

Let's see. Loan standards are tightening, subprime lenders are going bust, inventories are soaring, cancellations are high, prices are falling, and the bottom is in.

Hmmm. One of those does not seem to fit in. Dave Lereah, which one is it? One look at those whopping vacancies should be enough to convince anyone that there is massive and growing supply. One look at the changes in lending standards should be enough to convince anyone that the pool of eligible buyers is shrinking as well. Who now does not have a house that wants one and can afford one? Is there pent up demand or pent up supply? And the recession has not even officially hit... yet. Just who is going to be buying those homes?

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/