Homeowner and Rental Vacancy Trends in the Fourth District
The recent housing boom drew high levels of investment into construction and created excess supply. When demand faltered, prices and sales volumes dropped, leading to increased housing vacancy nationwide. This is a concern to bankers because a vacant home is often associated with a loan in delinquency. Rising vacancy rates cause falling values for any asset associated with residential real estate.
Financial professionals, academic researchers, and the national media have focused attention on the housing “crisis,” with elevated vacancy a key part of the discussion. Now that we are over two years into the crisis, it seems like a good time to return to the data on vacancy and answer some critical questions. Is vacancy still a problem? Is it rising? Are the attention to vacancy and efforts to lower it still justified? In particular, what are the trends in the Fourth District’s housing markets?
The vacancy data presented here are released quarterly by the Census Bureau. They are estimates of the percentage of all rental units and all nonrental units (called homeowner units in the data) in a metro area or state that are vacant at the time of the survey. The quarterly observations are quite volatile, so we have added an eight-quarter moving average to reveal the long-term trends.
Two of the large metro areas in the Fourth District, Cincinnati and Pittsburgh, show relatively little change in their rental vacancy from the mid-1990s through last year. Their homeowner vacancy, however, has increased. In Cincinnati, homeowner vacancy was around 2 percent at the beginning of the 2000s and has risen to around 4 percent. In both MSAs, the rise seems to have ended in the last year. A two percentage point increase in vacancy may not sound like a reason for concern. However, framed differently, this is a 100 percent increase in vacancy, involving tens of thousands of housing units. A change that large could depress rents and home prices.
The other two large MSAs, Cleveland and Columbus, have experienced substantial movements in the measures, particularly in rental vacancy. In the Cleveland area, rental vacancy rose from around 10 percent in the late 1990s to over 15 percent in 2006. In the last three years, that figure has come back down to around 13 percent. In Columbus, the rental vacancy rate started lower, at around 7 percent in 1999, and rose above 15 percent by 2005. Since then, Columbus’s rental vacancy has declined back below 10 percent and appears to be on a downward trajectory. The homeowner vacancy trends in Cleveland and Columbus follow the same pattern as those in Cincinnati and Pittsburgh. They have drifted upward by 1-2 percentage points since the year 2000 but have recently flattened or declined.
In one of the Fourth District’s smaller MSAs, Akron, the pattern seen in Cleveland and Columbus is repeated with a bit of a twist. Akron’s homeowner vacancy rose between 2000 and 2008 and then declined. Its rental vacancy rate also started off low in 1999, just above 5 percent, and climbed above 15 percent. Rental vacancy there turned down in 2005 and dipped below 10 percent by 2007. The twist is in the last two years of the data. The rental vacancy has turned up again, with the moving average suggesting a 4 or 5 percentage point increase.
The data series for Dayton and Toledo are only available for the last five years. Since 2005, it appears that rental vacancy in Dayton rose, while homeowner vacancy fell and then rose. In Toledo, both rental and homeowner vacancy might be higher in 2009 than in 2005, but the difference is not large enough to be significant.
While aggregating across an entire state does not represent a housing market, it could be of interest for an investor who holds mortgages or properties across the state. In rental vacancies, all four states experienced rises in rental vacancy between the late 1990s and mid-2000s. The upturn ended earliest in West Virginia, perhaps in 2003. Pennsylvania had a decline in rental vacancy until 2003 and then an increase until 2005. The rental vacancies have drifted down for Pennsylvania, Kentucky, and West Virginia since 2005. Ohio’s rise in rental vacancy was more or less steady for an entire decade before turning down in 2006. Since then, Ohio’s rental vacancy has dropped quickly to meet Kentucky and West Virginia at 11 percent.
In the homeowner vacancy rates, West Virginia and Pennsylvania have converged at around 2 percent. Kentucky and Ohio both began lower in this series, rose between 1998 and 2008, and then turned down in the last two years.
In a troubled housing market during a weak economic period, the bad news is that homeowner vacancy in the Fourth District is higher than it was before the housing boom and bust. The good news is that homeowner vacancy is level or falling in most regions of our district. Rental vacancy, too, is down in five of the seven Fourth District MSAs in the data and two of the District’s four states. Overall this suggests that our housing stock and prices are partway through an adjustment to the new economic conditions. Our continued attention will be warranted until vacancy returns to historical norms, or the market dictates that the new, higher levels of vacancy are the norm for our region.