Vacancy Rates, how high will they go?

Earlier today the census bureau issued a press release on second quarter residential vacancy and homeownership.    The report stated that residential vacancy has increased to 10.6%.   Based on this report the public press announced that residential vacancy was at an all time high.   This is true, but unfortunately this does not really tell the story.  You have to look farther into the data to see what's really happening. 

First the 10.6% vacancy is for all residential housing (single and multifamily) and not just multifamily housing.  For Multifamily (properties with over 5 units) the data is much worse.   The census multifamily vacancy shows at 12.1% eclipsing the historical high of 12% from Q2 2004.  This is truly a scary number, but I am afraid it's not going to drop for quite a while.    If you look at the long view of the data you see vacancy has generally increased over time.   And the volatility of vacancy has been relatively high over the last few years.

The regional data is also quite interesting and shows a slightly different picture.  While vacancy is up it's mostly in the South and West .  Year of year data vacancy is actually down in the Midwest and Northeast.    Why is this?   I am not really sure, but the south has always been a volatile vacancy market with lots of boom and bust while the Midwest has always been relatively steady.  Also, the Midwest was hit by high vacancy earlier in the decade.    Most regions are currently seeing historical high vacancy levels, but the Midwest saw its high vacancy in 2004 at 13%.   It never truly recovered from that level.

One question about this data is how it squares with other public sources which show lower vacancy rates.  The current Marcus and Millichap national report shows vacancy at 7.2% and Reis shows national vacancy at 7.6%, both well below the census data.    Both reports show vacancy at historical highs, but at levels below the census data.  There are a lot of reasons for this, but the biggest is that the census tries to evaluate the total market while the other services are evaluating larger more professionally managed rental properties in major metropolitan areas.   So the census data contains more rural and smaller properties than the other services.  Additionally the census data includes vacancy in multifamily condo buildings.    This is a big factor in today's market and one that the professional data services miss.   Further analysis of this data may allow you to evaluate the so called "shadow market" in certain metropolitan areas.

Does this mean we have a very high condo vacancy or smaller properties have higher vacancy than larger professionally managed buildings or urban areas have lower vacancy than rural areas?    This is not 100% clear, but the data seems to suggest that some or all of this might be true.  Whatever the reasons or the areas of the market most effected we still have historically high vacancy rates.  As a Multifamily owner your cash flow is being stressed.  Just remember that what goes up will come down.  While it may take some time the demographic trends and lack of new building will bring vacancy rates down.