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Low Inventories Conceal Hidden Vacancies, Threat Looms Nonetheless

While headlines continue to portray a housing market with rising prices and tight inventory, the ""Census Bureau"":http://www.census.gov/ released its ""_Housing Vacancies and Homeownership_"":http://www.census.gov/housing/hvs/ report this week.

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Government data reveal a dark cloud looming behind the bright headlines. Vacancies remain high, and according to ""Trulia,"":http://www.trulia.com/ more than three-fourths of the nation's largest markets are dealing with bigger shares of vacant homes than they saw prior to the latest housing bubble.

With inventory levels retracting even further -- falling 3.3 percent year-over-year in the third quarter, according to ""Realtor.com"":http://www.realtor.com/ -- it may seem counterintuitive that vacancies would be high. However, according to the Census Bureau, about 53.5 percent of vacant homes are currently being held off the market.

The vacancy rate today is 10.2 percent, according to Census data, down from a peak of 11 percent in 2010 but stubbornly higher than the pre-bubble 8.8 percent.

Furthermore, the high vacancy rate is widespread. Trulia pointed out in a ""blog post"":http://trends.truliablog.com/2013/11/vacancy-rate/ Wednesday that vacancies exceed pre-bubble levels in 86 of the largest 100 metros in the country.

Some homes are being held off the market temporarily for repairs before being listed for sale or rent. However, Trulia

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warns that when these homes hit the market, demand may not rise to match the new inventory.

""Household formation was alarmingly slow,"" ""said Trulia's chief economist, Jed Kolko"":http://dsnews.comarticles/does-q3-uptick-in-homeownership-rate-reveal-good-news-or-false-hope-2013-11-06 in a statement Tuesday responding to the newly released Census data. Household formation totaled about 380,000 year-to-date in the third quarter, notably lower than the historical annual norm of about 1.1 million.

""[T]he underlying survey data showed a slight year-over-year increase in the share of millennials (age 18-34) living with their parents,"" Kolko said in the blog post Wednesday. ""Without more new households, vacant homes will fill up slowly.""

Vacancies also directly impact new construction, according to Kolko. ""The local vacancy rate matters for construction--builders are hesitant to build new homes where there are many vacant homes,"" Kolko wrote in his Wednesday blog post.

In the 10 metros with the highest vacancy rates, new construction is about 48 percent of its historical levels, Trulia reports. On the other hand, where vacancy rates are lowest, construction has returned to historical norms.

Detroit, which ""recently topped two lists"":http://dsnews.comarticles/despite-bankruptcy-detroits-housing-market-thrives-2013-11-04 of recovering housing markets, outranked all other metros in terms of vacancies with a 19 percent vacancy rate, according to the Census Bureau's Q3 data.

Trulia points out that Detroit's vacancy rate far surpasses the next-highest vacancy rate--12.4 percent in Palm Bay-Melbourne-Titusville, Florida.

Detroit's low inventory and rising prices ""reported"":http://dsnews.comarticles/despite-bankruptcy-detroits-housing-market-thrives-2013-11-04 by ""Realtor.com"":http://www.realtor.com/ and ""Clear Capital"":http://www.clearcapital.com/ sit atop a shaky foundation of hidden vacancies.

The lowest vacancy rate, according to Trulia, was recorded in San Jose, California, where just 3 percent of homes sit empty.

Not surprisingly, vacancies are lowest in areas that suffered the least from the housing crisis.

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