With spring-selling season far behind us and summertime coming to a close, it’s prime time for builders to look back on their performance in the first half of 2016, re-assess annual goals, identify areas for improvement, and scope out new opportunities. As the risk-reward balance can be tricky to gauge when expanding to a new market, it’s more viable to identify markets to avoid, where home inventory (for both new and existing homes) is high, and occupancies are far behind.
According to homeowner vacancy rates from the Census Bureau in 75 major metropolitan statistical areas across the country, the 15 metros below have the highest amount of completed, vacant product on the market in the second quarter of 2016. The homeowner vacancy rate refers only to the proportion of housing inventory that is vacant for sale (excluding the rental market entirely), which is calculated by dividing the number of vacant units for sale only by the sum of owner-occupied units and vacant units for sale only, and multiplying by 100.
As shown in the table above, two Ohio markets appear in the top 15 MSAs for home vacancy rates--Dayton with a 5.6% vacancy rate, and the large Cleveland-Elyria MSA reporting a 3.1% vacancy rate. While Cleveland has seen an influx of younger residents in the past few years, the larger metro area including Elyria, and the Dayton MSA were both severely hit by the recession, and decline of the automobile and steel industries account (partially) for a steep decline in overall population that has carried through to today, contributing to a higher home vacancy rate. In contrast to the markets in the list, the national homeowner vacancy rate during the second quarter of 2016 was 1.7%.
For some other markets, vacant homes are not necessarily caused by economic slump, but are rather a result of over-building and a surplus of inventory. According to a report by Real Estate Economics (a Metrostudy company) annual building permits in Bexar County, Texas (where San Antonio is located) were at a pace of over 7,000 units for 11 straight years before 2009, with the volume exceeding 16,000 units in 2005. Metrostudy regional director Jack Inselmann, based in San Antonio, Texas, said the excess inventory in the local housing market has filled the Spring season with concessions in the move-up market, and left prices firm at very high levels and terms.
But in essence, the Top 15 rank is rather a snapshot of the U.S vacancy and should also be viewed in the context of historical trends. Using Census data, the list below compares homeowner vacancy rates in the second quarter of 2006 (pre-recession) to vacancy rate in the second quarter of 2016. Vacancy rates have increased the most compared to 10 years prior in these 15 markets:
Several markets in the list also appear on the list for top vacancy rates in 2Q16, including New Haven-Milford, Conn.; Richmond, Va.; Albany-Schenectady-Troy, N.Y.; Hartford-West Hartford-East Hartford, Conn.; Tucson, Ariz.; St. Louis, Mo.; and Dayton, Ohio. Please note that historical data for a few markets are not available (including Charleston-North Charleston-Summerville, S.C., and North Port-Bradenton-Sarasota, Fla.), because Census only started tracking those markets after 2015.
Vacancy rates in some of the markets above are higher than they were before the housing crisis, but for different reasons. In Urban Honolulu, Hawaii, and Seattle-Tacoma-Bellevue, Wash., affordability has been excessively weighed down by inflated housing prices, forcing many buyers (especially millennials) out of the market, despite the fact that many people would like to buy. In Richmond, Va., however, Metrostudy Public Record Data Analysis shows that the pace of annual new home closings is less than half of that seen before the recession, reflecting that the vacancy rate is reflective of a lackluster home market in general.