Increasing Home Vacancies Should Tame Inflation

Washington, DC, April 23, 2009--Rising home vacancies should help contain inflation.

A record 19 million homes stood empty in the last three months of 2008, up 6.8 percent from the same period a year ago, according to figures from the Census Bureau.

The share of houses for sale that sat vacant rose to 2.9 percent, the highest level in data that goes back to 1956.

Actual home and apartment rents, together with an imputed value for owner-occupied homes called owners’ equivalent rent, account for 30 percent of the consumer price index.

CPI will continue to be dragged down as OER, owners’ equivalent rent, continues to fall, said Dominic Konstam, head of interest-rate strategy in New York at Credit Suisse Group AG.

Owners’ equivalent rent rose 2.1 percent in the 12 months that ended in March, approaching the record-low 1.9 percent annual gain in January 2004. Consumer prices as a whole in March were down 0.4 percent, their first 12-month drop since 1955.

As landlords who have been trying to fight price declines finally capitulate, rents may fall further in coming months, analysts said. The Census Bureau report on first-quarter vacancies will be released on April 27.

Vacancies are expected to continue to rise along with unemployment and foreclosures, economists said. The jobless rate jumped to 8.5 percent in March, its highest level in a quarter century. Foreclosures rose to 3.3 percent of outstanding loans in the fourth quarter, the most since records began in 1979.