The Unbalanced Housing Market
Some interesting notes about today’s housing market based on REAL Trends research.
By Steve Murray, publisher, REAL Trends
The homeownership rate for Generation X and the Millennials is 6 to 8 percent below historical norms according to several sources;
The affordability rate and availability of inventory at the entry level of the housing market are worse than most brokers ever recall seeing in their careers;
There are over 14 million scattered, single-family residences owned by private investors and less than 5 percent of these are owned by institutional investors. Most are owned by those who own one to four units. An additional 7.7 million units of two- to four-family dwellings are also owned mostly by private investors;
At the recent National Association of Residential Property Management conference (over 600 were present), the consensus was that investors are in no mood to sell their investment properties. Rents are strong, returns are positive, and there is the question of what to do with the funds when one sells—money market funds at less than 1 percent don’t look all that interesting;
If millions of young families can’t find affordable homes to buy and if investors are holding millions of these properties, then what happens to the move-up market that drives all markets above? Recent data suggests that new households are being formed at an annual rate of approximately 1.2 million per year (JCHS Harvard), yet builders are only constructing 500,000 to 600,000 new single-family homes per year. With investors holding millions of entry-level homes and builders mostly focusing on mid-level homes, where will the inventory come from that enable young households to get on the housing ladder?
And, should millions of these young households not get on the ladder, where will the move-up demand come from? We hear from brokerage leaders across the country that their markets are more difficult than ever before. Multiple offer situations are confounding sales associates and managers alike. Pricing has become a guessing game based on who will show up with an all-cash, no-contingency offer.
Fundamentally cheap money is at the heart of this problem. Historically low interest rates and plentiful mortgage availability fire up demand. Historically high land, permitting and building costs, and the huge demand for investor-owned, single-family homes drive down supply. Lastly, an economy where asset values in housing have been going up at double or triple the rate of the growth in household income historically sets up the housing market for a slowdown, which may be what is needed to help this market get back into balance.