The Census Bureau reported yesterday that the number of vacant homes on the market swelled 34% to 2.1 million at the end of 2006 versus the end of 2005, the fastest increase ever. The vacancy rate for owned units set a record at 2.7%, up from 2.0% a year earlier. That rate has not been above 2% for forty years. The report implies significant excess supply in the housing market and thus no end in sight to the housing slump. "This argues that housing starts need to go down more," said James O'Sullivan, a UBS economist. Housing starts have declined 18% to a seasonally adjusted annual rate of 1.64 million over the past year. In 2006, the number of housing units rose by 2.14 million, but the number of units occupied rose by only 1.04 million. The homeownership rate -- the percentage of homes occupied by their owners -- was flat at 68.9%. Excess supply is likely to lead to an increase in homes available for rent, which should drive rental prices down and reduce core inflation. Northern Trust economist Asha Bangalore predicts a corresponding "quicker change" in the federal funds overnight interest rate.
• Sources: MarketWatch
• Related commentary: Economic Report Summary: Mixed Housing Stats, Existing Home Sales are Fantastic, According to the National Association of Realtors Anyway, Existing-Home Sales Dismal, But Expected To Pick Up
• Potentially impacted ETFs: iShares Dow Jones US Real Estate (NYSEARCA:IYR), iShares Cohen & Steers Realty Majors (NYSEARCA:ICF), streetTRACKS DJ Wilshire REIT ETF (NYSEARCA:RWR), Vanguard REIT Index VIPERs (NYSEARCA:VNQ)
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