Here is one reason analysts are being careful not to wave the all-clear sign: A large number of homes for sale are unoccupied. In the third quarter of last year, there were 5.7 million vacant housing units for sale or rent, accounting for a record 4.6% of all US homes. The average in the 1990’s was 3.5%. To get this ratio back to normal 1.3 million vacant homes would need to be occupied.
High vacancy rates have other effects, points out Credit Suisse analyst Ivy Zelman. When an occupied home gets sold, the seller has to buy another house. When a vacant home gets sold, the seller doesn’t have to do anything. That sets off a chain reaction that ripples through the housing market.
The owners of the unrented, unsold homes bear costs. They have insurance, lawn care, taxes, and often a mortgage payment. Seeing those costs pile up can motivate an owner to sell or rent at a lower price. When a house sells at a lower price, other would-be buyers expect lower prices as well. When it rents for less, it becomes a more attractive alternative to buying. The good news (yes, there is good news) is that trouble in housing hasn’t spelled trouble for the rest of the economy. Lower interest rates give households more buying power.

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