The Housing Shortfall
We are now more than half-way through the year and the biggest problem within the real estate sector continues to haunt the markets. The shortage of inventory is not only a drag for the real estate markets, but the economy as a whole. For decades, owning a home has been associated with the American dream. This is one of the few times in our history that we do not have enough homes for those who are ready to purchase.
The reasons for this shortfall are many. The financial crisis caused home building to fall significantly for years and we are still not building enough units. The Chief Economist of the National Association of Homebuilders recently estimated that builders would have to build 1.2 million units per year just to keep up with population growth and replacing aging housing stocks. At the current pace of below 950,000 units, there is a shortage of 250,000 units per year. That does not figure in the ground lost when even less units were being built in the earlier stages of the recovery.
The good news is that each year, builders are building more homes — despite obstacles such as labor shortages and higher lumber prices. But the shortages will not be made up all at once. Also contributing to the shortage is the fact that the baby boomers are holding on to their homes longer, as they delay retirement and/or downsizing. These homes will become available — again, not all at once. The housing shortage will eventually go away, but for now we will have slower growth in the real estate markets and thus a drag upon the overall economy.
If buying a home is anywhere in your sights, you’ll probably want to act fast. According to a new forecast, average payments will jump nearly 10 percent by early next year. It seems on-the-fence homebuyers need to pull the trigger. According to new data from CoreLogic, the typical payment on a home loan will likely jump 9.7 percent by March 2019, thanks to rising rates, inflation and higher home prices. All in all, the typical payment will come out to around $942 – a steep jump from the average $859 seen in March this year. “The U.S. median sale price has risen by just under 7 percent over the past year and the principal-and-interest payment on that median-priced home has increased nearly 10 percent,” according to CoreLogic’s Andrew Lepage. “Moreover, the CoreLogic Home Price Index Forecast suggests U.S. home prices will be up 5.8 percent year-over-year in March 2019 and some interest rate forecasts suggest the payments homebuyers face will rise as well.” Fortunately, for buyers who want to act before the impending rise, it seems homebuilders may be able to help. According to the recent data from the U.S. Census Bureau and the Department of Housing and Urban Development, housing starts were up more than 20 percent over May 2017’s numbers. Source: The Mortgage ReportsFifty-five percent of homeowners who have a child under the age of 18 say their kids’ opinions factored into their homebuying decision, according to a Harris Poll survey of more than 2,000 U.S. adults. What’s more, 74 percent of millennial parents—those up to age 36—indicate they took their kids’ opinions under consideration when buying a home. Renters pay even more attention to their children: 83 percent say their kids’ opinions mattered in their housing decisions. Though the trend is strong, real estate professionals and psychologists are torn on how much kids should be involved in real estate matters. Moving is a big decision, and involving the children more in the process may help them feel a greater sense of control and ownership, clinical psychologist Ryan Hooper told the Chicago Tribune. On the other hand, children could feel rejected if their parents are unable to fulfill their requests, Hooper says. Adam Lietman Bailey, a New York real estate attorney and author of the children’s book Home, says young children can be part of the homebuying decision without actually making the choice. He encourages parents to make their kids feel included by asking questions regarding what they like about the backyard or where their toys would go in the house. Still, “most parents already know [their kids’] desires and needs,” and “moving decisions are likely at a level above the child’s thinking capacity when choosing a home,” Bailey says. Source: The Chicago Tribune
The U.S. apartment market suffered its worst spring since 2010, near the depths of the housing crisis, as a flood of new supply and weakening demand resulted in rising vacancy rates and little or no rent increases in many major cities. Rents rose 2.3% in the second quarter compared with a year earlier, the weakest annual increase since the third quarter of 2010, according to data from RealPage Inc. While average rents continued to grow, individual landlords cut rents in some markets. In addition, landlords are offering tenants incentives. Landlords have enjoyed a record 32 straight quarters of annual rent growth on average, as the U.S. economy strengthened, and millennials delayed homeownership. But the reports of slowing, which began in a few markets in late 2016, have intensified to the point that the balance is shifting towards renters and away from landlords. Greg Willett, chief economist at RealPage, predicted average rents nationwide could flatten if current trends continue. “It’s kind of telling as we look at some of these individual markets that are losing momentum,” Mr. Willett said. The cause of the slowdown is primarily new supply. Developers responded to escalating rents by building the most new apartments in 30 years, sending a flood of new high-end units to downtown areas across the country. Developers are expected to add 300,000 new units over the next year across the U.S., Mr. Willett said. Source: The Wall Street Journal