When there is too much of anything, prices typically decline. The interaction of supply and demand is core to economics.
This applies to housing also. So rather than looking at those markets with the least amount of inventory, which would indicate rising prices, the National Association of Home Builders (NAHB) examined markets with the greatest vacancy rates. They looked at the vacancy rate of housing units for sale in the top 75 metros as reported by the U.S. Census Bureau. The calculation was done by taking the number of vacant units for sale, then dividing by the sum of vacant for-sale units plus owner-occupied units, then multiplying by 100. Rental properties were not included in the equation.
So what were NAHB’s findings?
To read the NAHB analysis and view the top-20 markets for residential vacancies, click http://www.builderonline.com/money/economics/builder-beware-30-msas-where-vacancy-rates-are-rising_o?utm_source=newsletter&utm_content=Report%2FResearch&utm_medium=email&utm_campaign=BBU_082216%20(1)&he=0db8bf94e31587727172b0e35615198372ed6096
Do these statistics add up, so to speak? Not necessarily. San Antonio-New Braunfels, for example, has just 3.9 months of inventory of homes available for sale, as reported by the Real Estate Center at Texas A&M University. With six months considered normal, the current less-than-four-months of inventory would indicate a tight housing market with limited inventory. Prices support that conclusion as the 12-month moving average of median prices is up 4.88 percent on a year-over-year basis as of July 2016.
Also consider the building permits versus jobs analysis — see http://blog.stewart.com/stewart/wp-content/uploads/sites/11/2016/08/8-17-16-pdf.pdf This shows that in San Antonio-New Braunfels, Texas there were 2.70 net new jobs created in the prior 12 months for each residential permit issued. With normal considered as 1.25 to 1.50 net new jobs per new dwelling permit, the San Antonio MSA is delivering just one-half of the new product needed. Dayton, Ohio gained 9.45 net new jobs per new dwelling unit and New Haven, Connecticut had 6.87 new jobs per new permit. Perhaps the vacant homes in this study are not truly habitable and are future lots for new construction following demolition or improvements.
Would I rely on the U.S. Census data on residential vacancies to ascertain over-supplied markets? No, I believe the jobs versus residential permits gives a much clearer and accurate analysis of supply versus demand, particularly when examined over a multiple year perspective.