Tag Archives: U.S. Economy

Home Vacancies Fall in Cities Hardest-Hit by Foreclosures

Home Vacancies Fall in Cities Hardest-Hit by Foreclosures

by John Gittelsohn and Prashant Gopal, Bloomberg, Aug 2, 2012

The home-vacancy rate is falling in U.S. cities such as Las Vegas and Phoenix that were hit hardest by the housing crisis, a sign the market is recovering, according to Trulia Inc.

San Jose, California, led declines among metropolitan areas, with a 24.1 percent drop in the number of empty homes and apartments this year through mid-July, according to Trulia, a real estate information company in San Francisco. It was followed by Las Vegas, Denver, the California areas of Bakersfield and Orange County, Seattle and Phoenix.

Falling vacancies, based on an analysis of homes where the U.S. Postal Service delivered no mail for at least 90 days, indicate a gain in the number of new occupants, caused by population growth and more household formation, Trulia Chief Economist Jed Kolko said. The shrinking inventory of available properties is pushing up rents and purchase prices, he said.

“Vacancy changes are strongly correlated with price changes,” Kolko said in a telephone interview. “The biggest vacancy declines are in markets where prices are rising.”

Home prices rose for a third consecutive month in May in the 20 U.S. cities tracked by the S&P/Case-Shiller index, according to a July 31 report. Prices rose 2.7 percent in Phoenix and 1.9 percent in Las Vegas from the previous month.

U.S. apartment rents rose the most in five years in the second quarter as shrinking vacancies allowed landlords to charge more, research firm Reis Inc. (REIS) said on July 5.

New Households

The U.S. vacancy rate fell to 3.4 percent as of mid-July from 3.6 percent a year earlier, as the total number of homes receiving mail increased by 970,000, according to Trulia. The additional households include about 760,000 new homes and 210,000 formerly vacant homes.

The Census Bureau reported last week that the U.S. home- vacancy rate fell to the lowest level since 2006 in the second quarter, while new households formed at an annualized rate of about 800,000.

Household formation fell to a 100,000 pace in the fourth quarter of 2008, after the U.S. financial crisis triggered by the bankruptcy of Lehman Brothers Holdings Inc. A normal rate is 1.2 million new households a year, which would spur demand for 1.6 million new residences, Stephen East, a homebuilding analyst with International Strategy & Investment Group LLC in Saint Charles, Missouri, said in a July 27 note.

Shadow Inventory

The shrinking vacancy rate indicates that the so-called shadow inventory, which includes homes facing foreclosure or repossessed by banks that aren’t listed for sale, is smaller than the biggest estimates and less of a threat to a real estate recovery, Kolko said. The shadow inventory was 5.95 million homes last month, down from a high of 8.79 million in early 2010, Morgan Stanley said in a July 26 report.

“Inventories are actually dropping partly because homes are filling up –- not just because people or banks are unable or unwilling to put homes on the market,” Kolko said. “In fact, vacancies are better than inventories as a measure of whether there’s a housing shortage or housing glut.”

The vacancy rate fell to 1 percent in the San Jose area, which includes Silicon Valley, where technology companies have been hiring and homebuilders face limited land supply and regulatory challenges that slow development, Kolko said. Job growth also helped reduce vacancies in Denver; Seattle; Raleigh, North Carolina; and Nashville, Tennessee, he said.

Las Vegas

In Las Vegas, where the vacancy rate was 5.8 percent, low rents and reduced purchase prices have enabled more people who doubled up with relatives to move into their own homes, Kolko said. Foreclosures in Nevada plunged in the past year after the state passed a law making it a crime to wrongfully seize a property from a delinquent borrower, allowing more homeowners to continue occupying their residences.

A diminished inventory of homes listed for sale helped boost Las Vegas housing starts by 62 percent in the second quarter from a year earlier, according to Greg Gross, director of the Nevada region for Metrostudy, a Houston-based firm that tracks new construction.

“It used to be that you’d see pictures of Las Vegas where there would be dozens of for-sale signs along neighborhood streets,” Gross said in a telephone interview. “Now, you don’t see that anywhere. Now my Realtor friends are saying that before they get a listing, the house is sold.”

Rust Belt

Detroit, which had the highest vacancy rate in the Trulia report, at 12.1 percent, has suffered from decades of declining employment and population, Kolko said. Other “rust belt cities” among the 10 areas with the highest vacancy rates include Gary, Indiana, and the Ohio cities of Dayton, Toledo and Cleveland.

In Florida, the past decade’s building boom is still responsible for the high vacancy rate in such cities as West Palm Beach, Fort Lauderdale and Melbourne, Kolko said.

While California has one of the highest foreclosure rates, vacancies have been limited, especially in coastal areas, because the state’s expensive land and development costs made it harder for builders to increase inventory.

“In San Jose and Orange County, vacancies are low, and getting lower,” Kolko said. “It’s very hard to find a home and that’s holding back sales and adding to the lack of affordability. The difficulty of building houses in Coastal California is big reason why they’re so expensive.”

Home Starts in U.S. Rise to Highest Level Since 2008: Economy

New home construction in Dublin, California.

By Michelle Jamrisko - Jul 18, 2012, Bloomberg

New U.S. home construction rose in June to the highest level in almost four years, indicating the residential real estate market is strengthening even as other parts of the economy cool.

Housing starts rose 6.9 percent to a 760,000 annual pace after a revised 711,000 rate in May that was faster than initially estimated, the Commerce Department reported today in Washington. The median forecast of 79 economists surveyed by Bloomberg News called for a 745,000 rate.

Record-low mortgage rates and cheaper properties are luring buyers, prompting builders such as Ryland Group Inc. (RYL) to boost construction. The gain underscores comments by Federal Reserve Chairman Ben S. Bernanke that the industry is on the mend, three years since the start of the expansion.

“Low borrowing costs certainly help at the margin, but the biggest thing is affordability in terms of the pricing,” said Stephen Stanley, chief economist at Pierpont Securities LLC in StamfordConnecticut, who correctly forecast June starts. Housing is “making a very modest contribution to growth. Unfortunately, it feels like everything around it is crumbling.”

The June pace was the fastest since October 2008, and estimates in the Bloomberg survey ranged from 710,000 to 800,000. Ground-breaking on new homes in May was revised from a previously reported 708,000.

Building permits fell in June, reflecting a drop in applications for apartment construction.

Stocks Rise

Stocks climbed as technology and industrial companies gained. The Standard & Poor’s 500 Index increased 0.5 percent to 1,369.9 at 11:12 a.m. in New York. The yield on the benchmark 10-year Treasury note fell to 1.48 percent from 1.51 percent late yesterday.

Elsewhere, the Bank of England has joined counterparts around the world in expanding measures to support growth as the threat from the euro-area turmoil increases.

The Monetary Policy Committee said while the arguments for and against cutting the benchmark rate from the current record low of 0.5 percent hadn’t changed since June, they may be reviewed in the coming months, according to the minutes of its July 4-5 meeting. The MPC voted 7-2 to increase quantitative easing by 50 billion pounds ($78 billion) to 375 billion pounds at the meeting.

Bernanke, in his semi-annual testimony to Congress on monetary policy, said the U.S. also has tools at its disposal in case the economic recovery fails to stoke job gains. He said yesterday that housing is improving.

Fed’s Bernanke

Growth in construction and “historically low mortgage rates” are among “modest signs” of a housing recovery, even as buyers show concern about personal finances and the broader economy and have difficulty meeting lending standards, Bernanke told the Senate Banking Committee.

Residential investment added 0.42 percentage point to economic growth in the first three months of the year, the most since the second quarter of 2010, according to Commerce Department figures.

Figures earlier this week showed retail sales dropped in June for a third month, a sign slower job creation is taking a toll on the biggest part of the economy.

Construction of single-family houses increased 4.7 percent to a 539,000 rate, the fastest since April 2010, from 515,000 a month earlier, today’s figures showed. Work on apartment buildings and other multifamily units climbed 12.8 percent to an annual rate of 221,000 in June from 196,000 a month earlier.

By Region

Two of four regions had an increase in overall starts in June, including a 36.9 percent jump in the West to a 219,000 annual rate, the fastest since April 2008. Starts climbed 22.2 percent in the Northeast.

“We are seeing different improvements in different parts of the country, but we’re seeing improvement everywhere,” Larry Nicholson, president and chief executive officer at West Lake Village, California-based builder Ryland Group, said on a June 13 conference call. “So that’s the key there.”

A report yesterday showed confidence among U.S. homebuilders climbed in July by the most since September 2002. An index of builder sentiment from the National Association of Home Builders/Wells Fargo increased by 6 points in July to 35.

One reason for optimism is falling interest rates have helped make homes more affordable. The average 30-year, fixed mortgage rate declined to 3.56 percent last week, the lowest in data going back to 1972, according to McLean, Virginia-based Freddie Mac.

‘Steady Recovery’

“Evidence from the field suggests that the ‘for sale’ housing market has, in fact, bottomed and that we have commenced a slow and steady recovery process,” Stuart Miller, chief executive officer at Lennar Corp. (LEN), the third-largest U.S. homebuilder by revenue, said in a June 27 statement.

Home prices are stabilizing and starting to increase. The S&P/Case-Shiller index of property values adjusted for seasonal variations rose 0.7 percent in April, the third straight gain. Stronger home sales will bolster producers of building materials.

At the same time, limited employment opportunities and competition from distressed properties are challenges for a housing market that’s struggled to gain momentum.