This piece originally appeared in the July 2024 edition of MortgagePoint magazine, online now.
Brian Cullen is CEO and Co-Founder of SingleSource (founded in 2000), a provider of property services supporting the U.S. housing industry. Brian’s responsibilities include daily oversight of all aspects of the company as well as various strategic sales and marketing initiatives. He graduated from John Carroll University with a Bachelor of Science in business administration and received his MBA from the University of Pittsburgh.
MortgagePoint recently had the opportunity to chat with Cullen to discuss the nation’s housing shortage issue and actions that can be taken to remedy this situation.
Q: With U.S. housing inventory so tight right now, how can vacant properties play a role?
Brian Cullen: Vacant properties hold the potential to provide significant relief to today’s inventory challenge. Many of these properties can be repaired and listed for sale, resulting in increased inventory, and relieving some of the current pricing pressure. Of course, this is not possible with the vast majority of vacant properties available. Roughly half of the approximately 16 million vacant homes in the United States are vacation homes, second homes, or rental properties, and another four million are permanently vacant. In most cases, the owners either do not want to sell or are not able to for various reasons.
That leaves vacant units that are foreclosures owned by the bank. Although it is difficult to determine the exact number of foreclosures, we have seen 15,000-20,000 national REO acquisitions per quarter over the last few quarters.
By focusing on these properties, and refurbishing them if necessary, we can add viable options for buyers in a market thirsty for more choices. This not only helps potential homeowners, but also strengthens the vitality of local neighborhoods and supports the overall health of the real estate market.
Q: Why are there so many vacant properties?
Cullen: There are many factors at play, but one major reason is the impact of COVID-era foreclosure moratoria on the nation’s banks. When these moratoria were put in place, all loans, including loans on vacant properties, were lumped into one moratorium bucket. This goes well beyond borrowers who were unable to afford their payments. It extends into life events like divorce and death, which are other reasons why properties are vacated and subsequently placed into the moratorium bucket. This has created an unnecessary bottleneck, causing properties that could otherwise be available and habitable to sit empty. Even now, four years later, we are still seeing the effects of the foreclosure moratoria. In our view, it becomes a real missed opportunity for a market desperate for inventory.
Q: What is the downside of vacant properties?
Cullen: Vacant properties present a number of challenges, not only for the housing market, but also for neighborhoods and communities. When a home remains vacant, it is frequently because the mortgage has not been paid for some time. And if the borrower was not paying their mortgage, they probably were not paying property taxes or keeping the property in shape, either.
Without regular maintenance, these homes can rapidly deteriorate, which can lead to code violations and legal and financial complications for whoever holds the asset.
By itself, neglect is a huge issue with vacant properties. It does not just impact the property in question—it creates a ripple effect on the surrounding neighborhood and area. When a vacant property is allowed to fall into disrepair, value will decline, and surrounding homeowners may see their property values decline as well. Plus, vacant homes often become magnets for vandalism and safety hazards. By addressing vacant properties proactively, we can prevent these negative outcomes and help maintain the vibrancy and safety of local communities.
Q: What is the biggest impact on the shortage of homes for sale right now?
Cullen: Interest rates are by far the biggest factor. Many borrowers have exceptionally low pandemic-era rates in place. If they decide to upgrade to a more expensive home, they are suddenly faced with the prospect of significantly higher rates, which could essentially double their existing mortgage payments. As a result, many homeowners are putting their move-up plans on hold.
Another factor is the general uncertainty in the market. Today’s higher mortgage rates mean that home sellers either have to sacrifice size or quality if they want to keep roughly the same payment. Many are expecting interest rates will drop at some point in the future, so they have adopted a wait-and-see approach, hoping for a more favorable financial landscape that will make upgrading more affordable. This sort of collective hesitancy further exacerbates the shortage of available homes.
A third factor is a decrease in new residential construction, which was exacerbated by COVID-19 and the disruption to supply chains. This has led to shortages in building materials and delays in construction projects, which have not only slowed the pace of new home completions but also escalated construction costs. This is restraining the availability of new housing supply as well.
Q: What other impact did COVID-19 have on housing supply?
Cullen: Prior to the pandemic, it was standard practice for employees to move when they got a new job in another city, which naturally led to homes being sold and added to the market. But because remote work has increased, many employees now have the flexibility to work from anywhere, so they no longer need to relocate for new job opportunities. And because the United States is also experiencing a labor shortage, employers are not in a position to require employees to move, either.
In fact, many companies have already reduced their office footprint during the past several years. All these factors combined mean that housing inventory is not being refreshed at the same rate as it normally did pre-COVID-19, contributing to the current tightness in the housing market.
Q: What can be done to ease the national home inventory shortage?
Cullen: Addressing the inventory shortage is a big challenge. But one thing that will help is adjusting bank regulations to encourage the foreclosure processing of vacant properties. Again, these properties are often vacant due to various life events like a death or a divorce—the homeowners have already relinquished their keys and moved on.
By transitioning these properties into for-sale inventory, we could see a notable easing of the current inventory squeeze nationwide.
At SingleSource, we are deeply committed to this effort. Since our founding, we have helped bring $4 billion in residential properties to market, including vacant properties. In fact, supporting the health and vitality of local communities by turning vacant homes around quickly and efficiently is one of the most rewarding aspects of our work. Ultimately, solving the inventory challenge of today will require a collective effort from the entire industry.
