Analytical Wealth

Rather than participate in the usual analysis of housing prices and home sales data, I decided to get down to Brass Tax and look at homeowner vacancy data:

Chart courtesy of the U.S. Census Bureau

So the first thing to realize when looking at the homeowner vacancy rate is that it doesn't include foreclosures and homes that have been pulled from the market, so the real count of available inventory as far as homes for purchase tracks quite a bit higher than this number indicates.

If you look at the historical norm the typical homeowner vacancy rate has been between 1.2% and 1.5% since around 1980, go back to 1970 and the range is 0.9 to 1.5%. You can look at some of that historical data on homeowner vacancies, as well as various other data points related to housing here.

When looking at the chart we can see the homeowner vacancy rate has increased by over 80% from  Q4 '95  to Q4 '08, with the primary surge occurring in 2006 as the housing boom began to wind down. In fact if we look at Q4 numbers the homeowner vacancy rate jumped by 35% from Q4 '05 to Q4 '06. This seems to track with both large numbers of speculators leaving the market, as well as builders having built housing units more in response to demand from speculators than anything else.

SO what does all of this mean?

It means that the housing market won't stabilize until inventory is at least close to historical norms. It also means that government policy can't put a floor on the market by focusing on the symptoms of the downturn: foreclosures, lack of demand, etc. In fact you could almost argue that the best tool to stabilize the market isn't government policy it's a bulldozer, stability can't happen until the inventory issue is resolved.

It makes more sense to look at vacancy rates than it does to look at prices.

Sources:

U.S. Census Bureau: "Housing Vacancies & Homeownership" -- February 3, 2009  

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.