Open house, anyone? 1 in 9 homes sit empty

CHANDLER, Ariz. -- The white notice taped to the front window of a luxury home in the Vasaro subdivision is a telltale sign.

"Bank-owned," says real estate agent John Groves, without skipping a beat.

There are other clues. Dirt where a lush lawn should be. Vacant lots on either side. And the sale price: $729,900 for a never-lived-in, 5,500-square-foot, five-bedroom, 3.5-bath custom home that about a year ago was listed for more than $1.2 million.

In a nearby subdivision of this community of 246,000, one of the largest suburbs in metropolitan Phoenix, a foreclosure sign in the front yard of a more modest house signals yet another financially troubled home needing a buyer.

Multiply that scenario hundreds of thousands of times. From Maine to Hawaii, millions of new McMansions, post-World War II bungalows, modern downtown lofts, exurban town homes and inner-city row houses sit empty. This unprecedented glut of vacant homes — one in nine homes across the USA, according to the Census Bureau — will change the real estate landscape for years.

Already, rock-bottom prices in the hardest-hit markets are attracting first-time home buyers who could not afford a home during boom times. Some areas may see real estate values stabilize by the end of this year, as buyers seeking bargains begin to reduce the backlog of homes for sale. At the same time, the availability of rental housing will widen, potentially pushing down the cost of renting.

"We overproduced by 1 million new units," says Edward Glaeser, economist at Harvard University. "Now we have to work our way through the stock."

What happens to the 14 million empty houses, condominiums and apartments and the 9.4 million that are for sale? How long will it take to absorb this massive and unprecedented oversupply of housing?

"Two more years," Glaeser says. His is one of the more optimistic estimates. Projections by housing analysts range from as early as this year in some areas to as late as 2014 in others.

"From a pure need for shelter, we don't need more homes built for the next several years," says John Burns, head of John Burns Real Estate Consulting in Irvine, Calif., who believes the recovery might take five years in some areas. "We clearly overbuilt."

Demand slackens

The nation's housing stock increased by 8.65 million units from 2002 to 2007 — a time when the number of households in the USA increased by only 6.7 million. Even after taking into account the need to replace homes torn down or lost to fire and other disasters, there is an excess of 1.3 million units, not including vacation homes.

The nation adds about 1.5 million households every year, but that number is shrinking. The recession, delayed marriage and a slowdown in immigration all have reduced the demand for more housing.

The bad economy forces many young people to live at home longer if they're single. Sharing a home with friends or relatives may be the only affordable option for many who can't keep up with house payments.