Where is the Housing Market Headed?

Filed in Economics, Housing Finance by on September 12, 2014 6 Comments

Sustained job growth, affordable home prices, low mortgage rates and a rebound in consumer, small business and builder confidence will help the housing market continue to show modest improvement and better production levels in the months ahead, according to NAHB Chief Economist David Crowe. Watch this video to get the full forecast.

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  1. Ray Pruban says:

    There a few things happening in this housing recovery that is impacting what is going to happen. The first is the availability of affordable lots. During the crash, banks became awash in foreclosed lots. Builders were able to buy lots fairly cheaply and in many cases even below what is cost to put the infrastructure in. We saw the market value of lots drop between 50-75%. As the market began to recover builders were able to offer competitive house/lot packages using these bank lots. In the Twin Cities market there were estimates of 20,000 lots, which equated to a ten year supply of lots. As the market is recovering the lots closest to the urban core have been absorbed leaving buyers with the choice of either paying much higher prices close in to the urban core or move to third ring suburbs. Because development loans have been traditionally been made by smaller local and regional banks who are still hurting from the real estate crash, lending has not returned to the land development market. This is having the effect of pushing up prices much bigher closer in. It has also meant that only national and large regional builder with other sources of capital are able to secure raw land for development.

    The second issue is the multi-family lot problem. In Minnesota, by the time you pay all the entitlement fees and infrastructure costs, you cannot build a multi-family lot unless the developer gets the land for free. As a result, we are seeing a trend of much reduced multi-family lots at the very time the market demographics is shifting to it. We have the baby boomerss, single moms and dads, young professionals, etc. all not interested or able to buy a single family home. The market hasn’t adjusted to the shifting market demand.

    So I wonder if the softness we are seeing is the market overall or is it the result of prices rising close in and the shifting market demand and the industries slow response to it?

    • NAHB Now says:

      Chief Economist David Crowe replies:

      The rising cost of land as well as labor and building materials does present a challenge to builders and home buyers. A couple of adjustments will have to be made to accommodate the trend. First, it is likely that we will go back to the ‘drive to qualify’ trend. Two trends will encourage this. The first is as you state: Cheaper lots will only be available at longer distances. Second, location to job centers is not as important as it once was. Employers can locate in ring suburbs or office parks and some jobs can telecommute. Third, transportation costs will not likely rise as fast as other costs. The U.S. is becoming more energy independent and that will keep energy costs rising less than inflation.

      The other adjustment will have to be rising prices in the existing market. If new homes are the only alternative to expanding the housing supply, then the price of the substitute, existing homes, will rise to meet the cost of building. Admittedly, this is a longer term adjustment process but it is inevitable if we are to house the coming generation.

      Lastly, younger workers aren’t earning the same level of income but do want to become home owners. The likely solution is that they will have to settle for more modest homes — smaller, with fewer amenities — to accomplish their goals of homeownership. They do still say in preference surveys that they want to own. And, as rents continue to rise faster than inflation, they will see the savings in a monthly mortgage payment rather than rent.

    • Gene Fribis says:

      All true. I see the same thing in the St. Louis, Missouri market.

  2. Andy Kelderhouse says:

    The forecast should include demographic information as it relates to the supply of buyers. Generation X is approximately 1/2 the size of the boomers. Couple that with the mindset of Xers and the milleniums – homeownership is no longer the dream of dreams – its more about lifestyle and immediate satisfaction. Many of the boomers are also entering the rental market due to uncertainty of the future of for sale markets. New home construction cost are playing a roll in bolstering existing home values as well. All of these will certainly be major factors in the single family and multifamily markets moving forward.

    • Rob Krohn says:

      “Generation X is approximately 1/2 the size of the boomers.”

      According to Neil Howe, Gen Xers were born roughly between 1964 and 1982. This puts the number at approximately 84 million. The baby boomers (b 1943-1964) at 74 million currently. I wonder where you get your belief that the Xers are so small?

  3. Tim says:

    I am not so optimistic… of the 6.2 million new jobs created, they are mainly part-time. So folks are having to work multiple jobs to make ends meet. The other factor is new and long term debt. with the new ACA – Affordable Care Act, people are having to spend more of their earnings on health care. Don’t forget about the needed “First Time Home Buyers” strapped with education debt. We forget about the most obvious, discretionary spending, our new millennial generation, whom is also our new first time home buyers like immediate gratification, GAS prices are a huge impact on the budgets of workers. More and more people have to commute further and drive to multiple jobs dumping a lot of money into their gas tanks. Sure, gas prices are on a TEMPORARY decline, but as President Obama has said, he wants to see gas a $5/gallon. It will happen. Also, people don’t want to get married and don’t want children. So if they are not looking to nest, they are not so concerned with buying a house. The job market only helps that as there is no such thing a real job security. As people have watched what their families have gone through with the most recent recession (Depression) staying mobile is key as jobs and opportunities come and go. Being strapped to a home can and will hold folks back from improving their financial situations. I don’t know what the answer or fix is, but I see the return to what we saw as a normal housing market in the early 2000’s about 20 years away from 2014.

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