Record 19m homes in US stood vacant in 2008

Washington looking at ways to stem the tide of foreclosures

A record 19 million US houses stood empty at the end of 2008, including properties for sale and for rent, as banks seized homes faster than they could sell them and prices continued to fall.

Vacant homes in the fourth quarter increased by 6.7 per cent from the same period a year ago, the US Census Bureau said in a report on Tuesday.

The share of empty homes that are for sale, the so-called vacancy rate, rose to 2.9 per cent in the quarter, the most in data that goes back to 1956.

The worst US housing slump since the Great Depression is deepening as foreclosures drain value from neighbouring homes and make it more likely that owners will walk away from properties worth less than their mortgages.

About a third of owners whose home values drop 20 per cent or more below their loan principal will ‘hand the keys back to the bank’, said Norm Miller, director of real estate programmes for the School of Business Administration at the University of San Diego.

‘When you’re underwater and prices continue to fall, you tend to walk,’ Mr Miller said. ‘It’s a downward spiral that’s tough to stop because it feeds on itself. Foreclosures encourage other foreclosures and falling prices discourage buying.’

The figures demonstrate the intensity of the US housing crisis as President Barack Obama considers ways to help homeowners.

The Obama administration is considering government guarantees for home loans, seeking to stem the record surge of foreclosures that’s hammering US property values.

The proposal, which may also have taxpayers share in the cost of reducing mortgage payments, is aimed at shielding lenders from default after they loosen loan terms for struggling borrowers.

Comptroller of the Currency John Dugan, who regulates national banks, said on Monday that ‘working out the details of it is still something that’s ongoing’.

Congress and the new president are grappling with how to repair the housing market as the recession enters its second year and unemployment rises. The US economy shrank the most in the fourth quarter since 1982, contracting at a 3.8 per cent annual pace, the Commerce Department said on Jan 30.

The US had 130.8 million housing units in the fourth quarter, including 2.23 million empty homes that were for sale, the Census Bureau report said.

The vacancy rate was 3.5 per cent in urban areas and 2.6 per cent in suburbs, the report said.
In addition, the report counted 4.1 million vacant homes for rent and 4.8 million seasonal properties.

‘Wealth loss and housing in combination with loss in the equity market will have ripple effects,’ said George Mokrzan, senior economist at Huntington National Bank in Columbus, Ohio.

‘The silver lining is that while home prices are coming down, incomes have stayed about the same, and in a lot of markets we’ll hit equilibrium this year. That’s a good sign for the long term.’

Source: Business Times - 5 Feb 2009