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Buying Frenzy

LendingNational vacancy rates for homeowners remained essentially flat in the third quarter. So did the national homeownership rate, according to the latest Quarterly Residential Vacancies and Homeownership report by the U.S. Census [1].

In Q3, the homeowner vacancy rate landed at 1.6 percent, barely 0.1 percent above the Q2 numbers and just as statistically indistinguishable from Q3 of 2017. Similarly, the third quarter's national homeownership rate of 64.4 percent hardly moved from Q2's 63.9 percent

Vacancy rates among renters barely changed from Q2 either. In the third quarter, rental vacancies topped out at 7.1 percent, which is flat compared to Q2 and down only slightly from Q3 of 2017, when they were 7.5 percent.

According to the Census, rental vacancy rates in Q3 were highest outside Metropolitan Statistical Areas, at 9.2percent. The rates in principal cities (7 percent) and in the suburbs (6.6 percent) “were not statistically different from each other,” compared to either Q2 or last year's third quarter.

Rates were also highest in the South, at 8.7 percent, followed by the Midwest (7.6 percent), the Northeast (6 percent), and the West (5.1 percent).

“The rental vacancy rates in the South and West were lower than the third quarter 2017 rates, while rates in the Northeast and Midwest were not statistically different from the third quarter 2017 rates,” the report stated.

Meanwhile, homeowner vacancy rates in the South (1.7 percent) were higher than those in the Midwest and Northeast (both 1.5 percent) and the West (1.4 percent),

Tian Liu, Chief Economist at Genworth Mortgage Insurance [2], said the Census report shows something positive–that more people are choosing homeownership over renting.

“A large part of that story is the historically large number of first-time homebuyers,” Liu said.

He said that in the past two years, first-time homebuyers have purchased at least 1.9 million homes each year.

“That is more than the pace of household formation over the same period, meaning that the transition from renting to owning is the more powerful driver of housing demand,” he said. “That has also been an important and often overlooked reason for the rapid rise in home prices, as more buyers came into the market.”

Paradoxically, Liu said, the rise of first-time homebuyers–which has pushed home prices up–also is slowing home sales today.

“These events caused the homeownership rate and home sales to diverge this quarter,” he said.