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. said on July 5.
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.
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.
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.”
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.”