Vacancy Theory

I just received the following analysis on vacancies from a friend and would like to share it. Here goes, from Ramsey Su, with a study on San Diego vacancies:

The Study
Analyze all sales in SD, on a monthly basis, to determine the percentage of properties that are vacant at the time of marketing/sale. This study is based on all sales reported in the SD MLS from Jan 2004 thru Nov 2006.

The Theory
The occupant of an occupied property has to seek new shelter upon completion of the sale. This implies that they will be buying or renting something else, creating a positive chain of events for the market. Vacant properties, on the other hand, imply that the occupants had already moved into another dwelling. The sale of a vacant property is not likely going to add to the demand. Therefore, the higher number of vacant properties for sale and sold is an indication of weaker markets ahead (and vice versa).

The Results
The percentage of vacant properties was lowest during the summer of 2004, in the low 20% range. The resale market was strong and continued to be strong. Oct 05 clearly marked the turning point (see table below) of the San Diego real estate market with negative year to year comparisons for every month since then. The percentage of vacant properties sold also increased at that time. On a year over year basis, 27.4% of sales were vacant during 2004 vs 36.4% in 2005 and 44.5% in 2006 thru Dec 22nd, the last day that I downloaded data for the study. For the first 22 days of Dec 06, 50.5% of the 1,393 sales were vacant.

Looking ahead
There have been much debate about the pent-up demand vs the real estate crash ahead. The market will give us the answer soon enough.

Indicators supporting the pent-up demand theory:
1. New listings do not overwhelm the market after the holidays.
2. The percentage of vacant listings decline. Each sale should generate yet another sale.
3. Sales activities pick up at an equal or faster pace than new listings.

Indicators supporting the crash theory:
1. New listings spike up after the first of the year.
2. The percentage of vacant listings increases, especially in REOs.
3. Sales activities trail supply.

Ramsey Su Opinion

Owners of vacant properties should have a greater urgency to sell, therefore more willing to negotiate and will likely drive down the price in the process.

For the owners who can no longer support the debt service with no income or utility from living in the unit, it should increase the likelihood of foreclosures.

The public home builders have stated that the inability of buyers, who are under contract, to sell their existing homes as one of the major reasons for cancellations. The ones who are willing and able to buy a new home before selling their existing home might have already done so, resulting in a portion of the vacant properties listed for sale. The remainder may be either unwilling or unable to complete the purchase of a new home until their existing home is sold. Therefore, in order for the home builders to have a strong season during the traditional peak months of Feb and March, existing home sales must pick up immediately after the first of the year.

Support Data

Total number of sales and percentage vacant
When the market is strong, the percentage of vacant properties is low, and vice versa.






Active listings
As of Dec 22, 06, SD MLS has 17,384 total listings (single family and condos). Of the total, 6,404 or 36.8% are listed as vacant. As stated above, 50.5% of Dec sales so far are vacant. Does that imply owners of vacant properties are indeed more eager to sell?

Pendings
For the first 22 days of Dec 06, the MLS listed 1,616 properties as pending (in escrow). 870 or 53.8% of these listings are vacant. This indicates that the trend is heading toward higher vacant listings, not lower.

Expired listings
From Oct 1, 06 to Dec 22 06, there were 7,912 listings that expired. 2,438 or 30.8% of those listings were vacant. Does that imply owners of occupied properties are more willing to hold out for their dream price?

Thanks for sharing Ramsey.
This trend will be interesting to watch.

Given that it is Christmas Eve here is a story I would like to share.
Bus riders get gifts from Secret Santa

A woman hopped aboard buses, greeted passengers with "Merry Christmas" and handed each an envelope containing a card and a $50 bill before stepping off and repeating the process on another bus.

She did it so quickly that descriptions of the woman varied among surprised Spokane Transit Authority passengers on several routes Thursday, The Spokesman-Review newspaper reported Friday.

"She kind of kept her head down. I don't remember ever seeing this lady before," said bus driver Max Clemons.
"I had a young man in the back of the bus. He looked like he was going to start crying. He said in broken English, 'She don't know how much this will mean to me at Christmas,'" Clemons said.

Transit authority spokesman Dan Kolbet said efforts to identify the gift-giver were unsuccessful. Her generosity didn't appear to be part of a marketing gimmick, he said.

The woman gave envelopes to about 20 passengers, he said. Each was sealed with a sticker that said: "To a friend from a friend." The woman, accompanied by one or two young boys, pulled the envelopes out of a cloth satchel. The buses were pulling away from stops before riders even knew what happened.

Merry Christmas Secret Santa
Merry Christmas and a peaceful and prosperous new year to everyone here as well.
May 2007 will be your best year ever.

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