With interest rates still near lows, and the recovery pointing to job growth, it is a good time to assess housing markets for residential and multifamily units. Using 2006-2008 as a reference point, nearly every major housing sector has had a gradual rise, and some areas have pockets that returned to previous high levels of price, demand, and sales volume. Interesting also to note that investment in real estate has not yet returned to pre-Recession levels. Bank lending for new home construction has returned, but many builders are reluctant to carry significant inventories. In most areas of the country, builders cite weaker consumer demand than they need to prompt more building; for them, the expected new home buyers seem to be missing.
HUD reports a median national price of $277,100 for the reporting period of March 2015 and an average price of $343,000. Using a 10 and 20 city index, some trends in housing prices emerge. At a median price of $280,000 the market average is far below the high of 2004-2008 but far above the lows of the years building up to the peak. There was a steady 30-year rising trend, and remarkably consistent growth in the number of households. This is a noteworthy change in the current era; there is a lower than expected level of new households seeking home ownership.
Hot Markets in the US
Washington, DC, New York City, and San Fransisco are among the hot real estate markets where demand has returned to pre-Crash levels and gone beyond into price gains. There are a few such markets, and some analysts wonder if there are new bubbles in the hot markets. One interesting survey by the Economist showed a trend. It revealed that in the period of June, 2013, there were only two cities in which housing prices were more than ten percent out of alignment with incomes and rental prices. Nine months later there were six cities more than ten percent out of alignment. Denver, LA. and San Fransisco were most out of alignment. In these regions data suggests housing prices are about 16 percent over the expected price range.
Sales of New and Existing Homes
Usually, new and existing homes compete on a national basis. The supply of existing homes has been a glut on the market for nearly a decade following the over-production in the years before 2006. The foreclosure epidemic in the Recession added to the glut. Largely, the markets have absorbed the surplus. Overall, sales of new and existing homes lag behind the levels needed to signal a return to full health for residential markets.
The Current Dynamic
Given the growth in population and immigration flow into the United States, there should be a larger number of households than there are. Some economists set the number at about 2.3 million missing households. These households instead are persons seeking to rent rather than buy, share space with family, friends, or stay in parents homes. The rate of home ownership has not met traditional percentages. Across the U.S., the more active sector has been in multifamily units including apartments, cooperatives, and condominiums. Apartments have surged ahead of new single family homes as the area of greater consumer demand.
Renting Costs the Economy
A single family home requires 3.8 person-years of labor compared to a unit in a multifamily structure, at about 1.18 person years per unit. As more Americans opt for apartments over homes, there is an opportunity cost for the economy. The loss of potential jobs creates a forward spiral of lower demand for big ticket items and housing. People who start households generate a substantial part of consumer demand.
On the Cusp
2015- 2016 should continue the upward trend in single family housing and also the small boom in multifamily residential building. Many experts point to 2017 as a potential boom year for the overall housing sector as momentum continues to build. There is no national or international policy consensus on growth, and in the global economy, economic drag can come from distant areas closely connected through finance, trade and commerce. Events and policies can reverse the current and out-year forecasts dramatically. Growth policies that build on the current strong economic momentum can help the U.S. economy rediscover the 2.3 million households that are waiting for an opportunity to emerge as home buyers.