Bad News Continues for Weak Housing Market

The bad news continues for a weak housing market. The number of vacant homes for sale rose in the third quarter, according to the latest government report that casts a harsh light on the weakness of the housing market nation wide.

The Census Bureau report puts the number of vacant homes for sale at 2.07 million in the third quarter, up about 2 percent from the second quarter, and 7 percent above year ago levels.

“It’s really striking how high that is compared to historic levels,” said Dean Baker, co-founder of the Center for Economic and Policy Research. “It’s a lot of homes sitting there vacant. It’s very hard to see how we’re near a bottom, when you have that much excess supply.”

In addition, Baker said that “owners trying to sell the vacant homes are going to be very motivated sellers, since it’s difficult to carry the cost of a home that isn’t having any use. That will drive down home prices and values for all homeowners. The problem is likely to get far worse as the problems in the mortgage markets could cause problems if foreclosures increase as expected.”

Over the years home owners and real estate investors have been brainwashed to believe that real estate values can only go on way, up. That may be true over long periods of time but history shows that there are time periods when real estate values can decline 40% to 50% amd more and take decades to recover value.

A recent example of this is in Japan where many properties declined as much as 70% in the long slow recession experienced in Japan starting in 1990. While the Japanese economy has recently shown some small signs of growth real estate values remain depressed and are far below the highs reached in the 1980’s.

As for the immediate prospects for the US market Baker says “It’s very hard to see how this doesn’t get worse. It’s certainly possible we could see 3 million, maybe 4 million (vacant homes on the market.)”

I doubt if investors should be too eager to buy in this market. Of course, if you really need a house and plan to live in it for a long time the situation is different. At least in a falling market you can purchase most houses for much less than you could have a year or two ago.

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