A Housing Surplus
Huge increases in foreclosures have resulted in millions of homes sitting vacant as bank REO managers struggle to sell the empty homes. Theoretically, people who have been evicted or lost their homes to foreclosures would be new renters. Consider, however, the increase in apartment vacancies to a 22 year high:
U.S. apartment vacancies rose to their highest in 22 years in the second quarter as job losses cut tenant demand and more units came to market. Vacancies climbed to 7.5 percent from 6.1 percent a year earlier, New York-based real estate research firm Reis Inc. said today. The last time landlords had so much empty space was in 1987,
“Vacancies continued to rise despite what has traditionally been a strong leasing period for apartment properties,” said Victor Calanog, director of research at Reis.
Job losses and falling wages are shrinking the pool of potential renters, defying forecasts that prospective homebuyers would rent rather that purchase as house prices decline. The U.S. unemployment rate rose to a 26-year high in June and U.S. payrolls dropped more than forecast in June, the government said last week.
Rents paid by tenants, also known as effective rents, fell 0.9 percent from the previous quarter to $975, said Reis. Effective rents were 1.9 percent lower than a year earlier.
“New buildings coming online over 2009 and 2010 will face higher initial vacancy levels, and will work to increase the pressure on leasing managers,” Calanog said.
The brutal economic fact is that those losing their homes cannot afford to rent. In many cases dispossessed adults are now sharing homes with children, friends or relatives. In addition, USA Today reports children are moving back into their parents’ homes:
Matthew Costigan is young, single and a recent college graduate.
So what does he do? He gives up his nice pad in the trendy Shadyside neighborhood of Pittsburgh and moves in with mom and dad. To his boyhood home. In the suburbs.
Costigan and many others in the most educated generation of young adults are seeking refuge under their parents’ roofs from skyrocketing housing prices, mounting college debts and a tight job market.
A survey of 2004 college graduates shows that 57% planned to move back in with their parents. MonsterTRAK, an online job site for college students and young alumni that conducted the survey, found that 50% of 2003 graduates are still living at home and 35% are still looking for work.
The Families and Work Institute for the first time asked 3,504 employed adults whether they have grown children living at home. The findings were surprising, says Ellen Galinsky, president of the New York research group. “Fully 25% of employed parents have children from 18 through 29 years of age living at home at least half of the time,” she says.
Forced by economic hardship, children are moving back in with parents and parents are moving in with their children. Meanwhile, apartments and homes sit vacant, causing bank losses on homes and commercial loans.
Foreclosed empty homes and increasing rental vacancies are just one more sign of an over leveraged, cash poor consumer. Forecasts predicting an economic recovery based on increased consumer spending are certain to be wrong. Major job losses and wealth destruction of the past two years are forcing consumer to do what they must to survive. With job losses increasing and unemployment reaching depression levels, an economic recovery remains a fantasy at this point.