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Low Inventory of Vacant Homes Helps Housing Prices and Builders

JAN 29, 2013 1:09pm ET
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The housing market ended 2012 with the lowest number of vacant homes for sale since 2005 and what used be to a drag on the housing market has now become an  important factor behind the recovery.

The Census Bureau reported Tuesday morning there were just 1.5 million vacant homes for sale at yearend, down 16% from the fourth quarter of 2011.

The 1.5 million level used to be considered the norm until the housing bust.

But the number of vacant homes for sale jumped above 2 million in 2006 and remained there through 2010. That amount of excess supply hurt homebuilders and put downward pressure on house prices.

Vacant homes for sale generally present foreclosed properties and hard-to-sell houses. And it’s difficult for builders to compete when buyers can chose from a large inventory of lower-priced existing homes.

There were just 151,000 new homes for sale in December. And the inventory of existing homes is near historic lows, according to Robert Mellman, a senior economist and managing director at JPMorgan Chase Bank NA.

“The much-tighter demand/supply balance is helping to drive prices higher and is encouraging construction of new homes,” Mellman said in a Jan. 25 report.

The Census Bureau report also shows the U.S. homeownership rate was relatively stable during 2012 and ended the fourth quarter at 65.4%, down from 66% a year ago.

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