The excess supply of vacant housing stock has fallen to its
lowest level in nearly a decade, a sign of a shrinking "shadow
inventory" that should help support stronger housing values.
The number of excess vacant rental and for-sale residential
properties fell below 600,000 during the second quarter of the year
for the first time since 2003, according to new figures released by
Chief Economist Frank Nothaft. That's in contrast to nearly 2
million during the peak of the economic crisis in 2009.
Meanwhile, the "shadow inventory" of homes in or at risk of
foreclosure has fallen to 3.6 million, still a large number but a
substantial reduction from the 5 million calculated during 2009.
The estimate includes homes either in foreclosure or at least 90
days delinquent on their mortgages.
"Recent data continues to suggest that the bottom in the U.S.
house-value cycle may have been reached," Nothaft wrote. "Even if
national indexes dip in the seasonally weak autumn and winter
months, the declines probably won't be big enough to erase the good
second-quarter news on home values. This means the housing recovery
may finally be coming out from the shadows."
The smaller number of both foreclosures and vacant properties is
a positive development for home values, Nothaft said, because it
limits the number of discounted properties on the market. Fewer
vacant properties means investors are willing to pay more for
foreclosures, Nothaft explained, meaning that foreclosures exert
less downward pressure on housing prices in general.
Foreclosure sales fell to 13.5 percent of all home sales in May,
the lowest market share since March 2008, according to recent
figures from the Mortgage Bankers Association.
To be sure, the biggest decline in excess residential properties
has been among rental units. There were roughly 200,000 excess
vacant rental units during the second quarter of the year,
representing 8.6 percent of all rental properties, the lowest level
since 2002. Even so, that benefits the housing market indirectly by
raising the cost of rents and making buying a home a more
attractive option, according to the Freddie Mac analysis.
The excess vacancy rate among residential properties for sale
fell to 2.1 percent in the second quarter of 2012, the lowest since
the second quarter of 2006.