Gov’t Reports Record Number of Vacant Homes

Posted on April 28th, 2008 in Mr Mortgage's Personal Opinions/Research

I hate to use ‘Government data’ for anything, but in this case I will make an exception WITH some comments.MarketWatch just released a news clip with data from the Commerce Dept saying the number of vacant homes reached a record high of 18.6 mil units, which was a 1 mil increase in the past 12 months. Of those 18.6 mil, only 2.3 mil were for sale (listed inventory) at the end of q1. The report also stated that a record 4.1 million vacant homes are for rent, with the rental vacancy rate rising to 10.1%.What does this mean? It means the ‘Months Supply’ figures released by NAR each month with the Existing Home Sales figures, which the press and market love to get so hot and bothered over, are highly suspect. While they are accuate with respect to supply of total homes ‘FOR SALE’, the amount of potential inventory is staggering when considering vacancies…Months Supply reported each month is calculated using the ‘listed inventory’ (see above) and a sales rate.

Last month, the national Months Supply was roughly 10 months. But, if actual vacant supply is 8 times listed supply, the supply glut is likely much worse than even I thought. Of course, nowhere near all vacant homes will go into the supply chain but even so, the potential supply looks to be much larger than anyone has estimated. However, with prices moving downward and inventories up at such a quickening pace, stagnant supply in the form of non-listed vacant homes may enter the market at a greater rate. Also, don’t forget that the number of ‘listed’ home is always considerably lower from Dec through Mar as real estate sales persons remove listings in the slow months and put them back on, usually at higher prices, going into the Spring/Summer selling season. This ‘refreshes’ the listing.

Essentially, supply is coming from everywhere and growing. As you have heard me report many times in the past, the Notice-of-Default filings (preforeclosures) are also surging, especially in the bubble states, and NOT primarily from subprime borrowers. For example, in CA for March there were 42,700 Notices of Default (NOD) and 27k actual foreclosure filings according to data from ForeclosureRadar. Actual home sales were fewer than either category.

Given that only 25-30% of all NOD’s are cured and the rest go to foreclosure, there is a growing wave of foreclosures (supply) still coming. Of all foreclosure listings, only about 25% are cured. The rest go to auction. At auction in CA last month, only 2.5% sold and the rest went back to the bank as REO. Similar numbers hold true for other bubble states.

Bank REO is counted in the total vancany rate, if vacant. Bank REO is a real wildcard and responsible for massive price swings lower in neighborhoods throughout the bubble states. I will get into much deeper in future releases. There are also currently a few YouTube videos listed to the right that deal with foreclosures and home sales.

If proven economic principals supply, demand and affordability hold true, this vacancy report does not bode well for housing prices going forward. These data certainly do not point to any sort of ‘bottoming’ in the housing market whatsoever. Rather, it points to ‘early innings’ of a housing correction. -Best, Mr Mortgage

MarketWatch Story Link

MORE MR MORTGAGE – YOUTUBE SERIES

Mr Mortgage – Non-mainstream March Existing Home Sales Report http://www.youtube.com/watch?v=xi76bemJECU

Mr Mortgage – March Foreclosure Crisis http://www.youtube.com/watch?v=lkQz9Aw4dNo

Mr Mortgage – Here Comes the ALT-A Crisis http://www.youtube.com/watch?v=pmeBSWI9sF8

17 Responses to “Gov’t Reports Record Number of Vacant Homes”

  1. Any guesses why so few are on the market? Are the banks stockpiling them, hoping for a rebound or not wanting to flood the market, or are they just dragging their feet because they’re overwhelmed?

  2. on the foreclosure (REO) side of it, that is exactly right. On the overall side, who knows. I would like to find data on the historical percentage of total vacant homes vs broker listed homes. I bet the percentage is at an all time low.

  3. New Bloomberg article out late AM

    S&P Lowers CDO Assumptions, Signalling More Downgrades

    My summary: S&P lowers recovery assumptions for ABS CDO’s. 40% are U.S. RMBS created after Sept 30, 2006. Super senior should get 60% at most and securities rated A or lower should get nothing.

    This jives with Mr. Mortgages recent points about recoveries.

  4. What is your take on the short sale business. I work with a company with people who are pre-nod. Can the price be adjusted for a fast sale or are there just to many houses on the market. BTW I live in the central Valley Fresno to be exact.

  5. RM – funny part about that is CDI recovery rates are falling through the floor and vulture buyers have been out buying the stuff at 65 to 70 cents on the dollat thinking they are getting a great deal. I can’t believe after being burnt so many times in the past, they continue to relentlessly speculate on real estate based investments.

  6. Hi Mark
    Congrats on the new site.
    As Vi is my resource on the US$ and Tom Whipple is my resource on energy , you are “The Main Man” on mortgages.

    Thanks for all your effort here….keep up the good work.

    Dave

  7. MortgageMan, I too have wondered what the “natural” share of real estate listings that REALTORS have in the MLS. The best data I have found indicate that over the long run it has been in excess of 80%. However, that figure was down to less than 40% during the boom years of 2004-2005. The data is available on a lagging basis as overall sales (FSBO and MLS) are compiled in each county. My indications for most of Florida (Orlando on to Miami) is that the MLS has about 70 to 75% of listings with the rest being FSBO or through various non-traditional services.

    Of note are a few of the following: Most builders only put a few “sample” homes in the MLS of their inventory. Same for condo conversions.

    MLS’s around the contry are starting to crack down on the abuse of the MLS in short-sale listings, as most of these short sale (phantom) listings are not unconditional offers. My guess is that this may result in an artificial drop in inventory as many REALTORS give up listings them. They will still be out there though as a short-sale offering or an eventual foreclosure. Right now, they represent nearly 5% of listings in Central and Gulf Coast Florida.

    Also, your comment that re-listing a property in the spring “refreshes the listing” is, for the most part, no longer valid as both major MLS software platforms have a sales/listings history button that shows all of the activity for the past 8 years. This old game is at an end.

    Regards!

  8. Noooo, nobody in the industry ever tried to brow beat people into taking out all of their home equity…….

    “If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years,” said David Lereah, chief economist of the National Association of Realtors and author of “Are You Missing the Real Estate Boom?” “It’s as if you had 500,000 dollar bills stuffed in your mattress.”

    He called it “very unsophisticated.”

    Anthony Hsieh, chief executive of LendingTree Loans, an Internet-based mortgage company, used a more disparaging term. “If you own your own home free and clear, people will often refer to you as a fool. All that money sitting there, doing nothing.”

    The financial services industry is doing all it can to avoid letting consumers be foolish. Ditech.com touts home loans as a way to pay off credit cards, and Morgan Stanley says they’re a good way to fund education expenses. Wells Fargo suggests taking a chunk out of your house to finance “a dream wedding.”

  9. arguing with you regarding exotic loans ‘being a market adjustment’ is not where I will spend my time. The default rates across all exotics including prime home equity loans talk for me. You need to start looking at the data – the data do not lie. The data support my opinions.

  10. Dear sir,
    Thank you for very telling videos and writing on mortgages.I am NOT a clever member of a top notch investment house/bank,but have had a gut feeling for a number of years that the amount of building,particularly here in England and in other parts of Europe was unsustainable.You have brought to light the data in a very manageable way for an ignorami such as myself.European pension funds and banks have had nuclear devices explode in their vaults and they are using draconian legislation to hide their problems,particularly the Bank of England.My perception,which is just that,is that much much worse is to come.I work in a very lowly position in a Russian oligarchs home,yet he and his guests are all concerned about American mortgages-who would have thought?
    My only hope I can some how play this unfolding disaster.
    Thank you again for your time and huge effort.

  11. Sounds good more houses to choose from. My question is with interest rates. Whats up with it. CalHFA.com raise their rates from 5.25 to 7.125 in the last few months. I have notice a decrease in housing prices but this also adds to the cost with those larger spikes.

    Whats the likely hood that they will go down through the end of the year or maybe go higher?

  12. Fact #1: 95% of borrowers will do fine….we have a 5% problem…which is a big problem in so far as we historically have a 2.5% problem. Most industries would love to only be wrong 5% of the time. Wall Street operates on a 51% accuracy rate…..the government is worse…how is your predictive accuracy?

    As to the topic here, vacancies…this is a mystery. BTW, the vacant home numbers are probably correct. However, everyone has to live somewhere…where have all of the former homeowners gone…??? Or, was the a huge rental vacancy problem that went unnoticed? Rents should be going up…and they are not in my area.

    One of the problems with the current mess is the commentary form those who have little true understanding of housing and mortgage lending….even the “expert” commentators and accademics.

    Go with me on this: First, imagine a large stadium setting, such as the Rose Bowl. Next, imaging the person sitting in the most distant seat is announcing on the game for one of the media companies covering the event, with his color analyst. Lastly, imaging they are all near sighted and suffering from myopia. Something tells me that “call” will be problematic.

    This is how I view much of the commentary on the current situation in mortgage lending and real estate. Many commentators, too far from the playing field, viewing the blur as it were, and making simplistic comments and rendering poorly supported criticisms about a very real situation…and missing much of the game. Add to that the fact that the commentators have no real experience in the housing and mortgage industry..at street level, and you have uninformed, inexperienced opinion that knows not what is sees.

    I work on Main Street, in the mortgage and real estate industries. I sit with home buyer prospects, and have since the late 70’s, and discuss with them on the whys and wherefores of the transition from tenancy to home ownership. Or, I meet with existing homeowners and discuss refinance and debt restructuring choices. I hear the details of their situations, the realities of the lives and explain options currently available. Like the infamous Jim Cramer rant…”they just don’t get it” …he was right…THEY don’t get it! THEY being the folks in the cheap seats.

    It is my view that, if a homeowners income is at or above the level it was when they purchased their home, or last financed their home, then all is probably ok. It is my view that, of those who are in trouble, the vast majority (in the high 90% range) have suffered significant income discounts of 30% or more…and that is not a story I ever hear. This is not a subprime, ARM reset, 100% LTV problem…it’s not a housing problem. It’s really the economy, and about household income, and negative changes taking place.

    As I see it, housing is a victim, not the culprit. The real culprit is not the free market…it’s radical, poorly formulated , market manipulation. Were there some housing issues developing…assuredly, YES. Had the response been more measured and responsible, would the issues have developed to the point we are at today…most assuredly, NO.

    Case examples:

    Case #1: I had a Hispanic client who was working as a roofer. He was grossing about $7,000 per month is 2005, according to his paystubs. He did not possess a green card, but his sister did. So, she bought a house as a second home. She did not need th3e property…or want it…or intend to pay for it. It was the brothers plan to pay for the house, and to eventually correct his legal status. Today, with the construction downturn, his income is $3,000, and Arizona has its Employer Sanctions Law, which is making employment difficult. Is this a sub-prime problem or an income problem.

    Case # 2: Client and his wife buy a home in 2006 with a conforming, 100% LTV, fixed rate loan. He delivers rock and decorative stone. Today, with the construction downturn, he no longer has a job. They may leave their $1,100 payment, for a $900 rental, in part because they can save on fuel prices as their home is 20 miles (one way…80 mile per day for both) from their new jobs. Is this a 100% LTV problem or an income problem.

    Case #3: Retired teacher and his teacher wife build a new luxury home. They gross over $100,000 with his retirement, his income from a second teaching job with the University of Phoenix, his wife’s income and payment from the State of Arizona for children he adopted. After 12 years with the UoP, his $25,000 job was cut and now they are in trouble. Their current loan is a 5/1 ARM, with 2 years until reset…unfortunately he will lose the home before then…by sale or foreclosure. Is this a reset problem???

    I have more case studies from my closed files like these, but you can see the trend developing.

    In 2005, the FIDC did a study entitled “Boom Does Not Always Follow Bust. The conclusions of the study were that, after price run-ups, prices stagnate, rather than burst, unless there is a severe economic reversal (like in Detroit…like in the construction industry…like what may be developing right now) or an event like Katrina. In most case, the housing market stagnates until income growth regenerates…then housing prices take off again. The study was done in 2005, so none of the radical reversals in lending practices and guidelines were included in their model. Just like homebuyers and borrowers, they looked the current playing field, the “rules of the game” so to speak, and made a buying/borrowing decision. Would their decision be the same if they had the benefit of knowing “today’s playing field” …but that is hind sight.

    With proper management of the mortgage markets during this transition to stagnation by the highly paid, but myopic rulers of the GSE’s, Wall Street and the major lenders, we could have avoided all of this current mess. The mortgage industry spent 7 years, or so, developing guidelines and then spent 7 months, or so, undoing it all. Had we amortized our way back to a more reasoned approach to lending, we would have not have the “shock and awe” problem we are now faced with.

    How does housing impact the economy? Robert Shiller, he of index fame, did a paper in 2006 which compared the impact of increases in stock market prices and increase in housing prices on consumption in the general economy…this study was multi-national. It concluded that stock market increases had no correlated impact on the consumption in the economy. He did, however, conclude that housing had a strong correlation to consumption in the economy. Shiller concluded that a 10% growth in housing prices had a 1.1% increase in consumption patterns in the economies he studied. Which begs the question, ”What will a 10%-20%, or greater, downturn in housing values do to consumption and the general economy?” When housing works, it seems, the general economy works well. When you crush housing, and believe me, for some reason housing is being crushed…nothing in the economy will work.

    This snowball is out of control now, in part due to an artificially magnified downturn in the real estate and mortgage markets, which is the result of an inadequate understanding of the various dynamics involved by those highly paid individuals, and pundits in the cheap seats.

    The old saying, “whether you rent or own, you pay for the space you occupy” really applies now…everyone will suffer, renters and homeowners alike, in some manner, in some degree. ALL homes will go down in value…all interest rates will be affected…all participants in the economy will suffer. ALL! So why all of the negative and angst driven posts regarding housing…we all should want housing to work and work well.

    Real estate is not a slide rule industry… the process is not that precise. Homebuyers and borrowers have to be right once, too, and wait for seven years…the average term of ownership. Lenders ARE right 95% of the time…

  13. John, although I do not necessarily agree with everything you said I am posting your comment with no response yet, as I do not have time, in order to let others view and respond.

  14. in reference to JohnP’s post… case #1 is clearly a case of mortgage fraud. The Sister is clearly a straw buyer. Second Homes are not allowed to receive ANY rent income, and the borrower must agree to visit the “SECOND” home for usually 15 days. To answer your question this is NOT a sub-prime or income problem. This is a problem with the originator of the loan committing FRAUD and perpetuating it upon the “straw buyer”. HENCE OUR CURENT PROBLEM and REPUTATION as Mortgage Bankers/Brokers! I would hire an attorney if this loan goes bad! Your “closed files” as you state would be a great lead source for attorneys. You also might look back and ask yourself if you could have placed these borrowers into real programs and not sold them on a loan you would HAVE to refi in 2 years. The only trend i see in your “closed files” is abusive lending!

  15. Response to JohnP’s post

    Lets get a clear concise understanding of how this market worked and will work again.

    Value = what someone else will pay for it. Until the market price adjust to where people can actually afford a home based off of the financing available.. this market will continue to nose dive like a dike on her birthday. But wait there is more.. didnt realize that the price of gas was going to maybe hit 5 dollars a gallon did you? or that food would be worth its weight in gold. Not only do we have a glutof homes, financing road blocks, affordability issue but now we have a transportation cost increase and food increase. Oh yeah that 600 bucks you are about to get from Bush should cure you food issue for a month.. I could go on and on.. and I dare a challange from anyone who thinks otherwise.. Let me set you up just in case you feel froggy.. New Home Builders… And btw .. Mr Mortgage you never responded on my short sale question..

  16. JohnP, you think people don’t understand becuase they’re too far from the problem. Let me suggest that you cannot see the forest because you’re amongst the trees yourself. You can’t smell the stench because you’ve been living in the sewer all along.

    As JeffH notes, Case 1 is mortgage fraud.

    Case 2 and 3 are obvious failures to follow the 3 C’s. If the borrowers’ margins were so tight that the non-catastrophic income stresses described forced default, then DTI was obviously far too high to begin with.

    This isn’t an artificially magnified downturn, but the opposite, an artificially magnified rocketshot up fueled by cheap money and complete dismantling of time-honored lending standards.

    I actually do understand housing and mortgage lending. And I believe that you and your kind are rightfully headed the way of the dinosaur.

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