A recent report by economic research consultancy Capital Economics shared a stunning statistic: The number of vacant single-family homes for sale priced under $250,000 has halved since 2012.
According to the report, at the start of the third quarter of 2019, there were only 550,000 vacant homes on the market priced under $250,000. That’s half as many as there were just seven years ago.
Capital Economics attributes part of this to lower housing inventory, in general, stating that the overall number of vacant single-family homes for sale has dropped 25% in the last seven years.
“The homeowner vacancy rate, that is the number of vacant homes for sale (which account for just over half of all homes for sale) as a share of all owner-occupied homes did see a marginal rise to 1.45% in the third quarter,” the report stated, citing the latest U.S. Census Housing Vacancies and Homeownership survey.
“But that was up from a 40-year low in the second quarter,” the report continued. “Sales are therefore being held back by a lack of homes on the market, and in particular a shortage of cheaper homes.”
As Millennials increasingly enter the housing market and Gen Z begins to join, the lack of affordable homes could hamper their homebuying prospects. With both generations taking on historical amounts of student loan debt, increasing home prices are not a welcome reality.
“That suggests the tick-up in the homeownership rate for under-35s in the third quarter, to 37%, is not the start of an upward trend,” the report states.
“Rather, we expect young homeownership will hold its ground over the next couple of the years. But new households have to live somewhere and, if they are not buying a home, they will rent one,” the report continued. “That suggests rental vacancy rates will stay relatively low, preventing a sharp fall in rental growth as the economy slows.”
The report does point to one bright side: “the strong labor market over the past couple of years has supported household formation.”
Capital Economics cites that in the past two years since this year’s Q3, 2.9 million new households were formed. For comparison, only about 1.9 million households were formed in the two years to the third quarter of 2017.
Household formation could lead to more people being ready to buy a home, but the report issues a warning there as well.
“New households will have found it increasingly hard to find an affordable home to buy,” the report states. “The share of vacant single-family homes for sale priced under $250,000 has been on a steady downward trend since 2014, and averaged just 57% in the year to Q3 2019.”
“Moreover, with credit conditions relatively tight, and getting tighter, potential homebuyers will not be able to stretch their budgets to buy a more expensive home,” the report continued. “…until homebuilders ramp up production of cheaper properties, home sales, and in particular sales to first-time buyers, will see only minimal growth.”