Housing Boom Coming Say Optimists

Here we go again as it becomes clear that the housing crisis has leveled off, at least in most areas.  Optimists who have been awful quiet lately are now emerging with a new found vigor and predicting banner days ahead.  Why is it that there is a housing boom coming say optimists?

• From 2002 to 2007 a net average of 1.5 million American households were created every year.
• During that time almost 2 million new homes were created annually
• Today home building activity is reversed with only 700,000 new homes being built annually and 1.1 million new households being created.
• Today’s home building rate is unsustainable because it’s far too low to meet demand.
• Employment rates have soared.

Many Homes Still Underwater

Harvard’s Joint Center for Housing Studies estimates that household formation will average 1.5 million from 2010-2020.  Considering the large number of houses that are aging beyond repair and need to be razed combined with continuing low interest rates and the picture can be made to look rosy indeed for those that are so inclined.  The fact that many homes are still underwater does act as a huge drag on people who would love to sell but have to wait…and student loans are crucifying a whole generation of potential home buyers.

Housing Pessimists Say…

Do I hear a pessimist behind me clearing his throat?  Probably one of those spoil sports…maybe even the grinch arriving early.  You know the type.  The people who get pleasure out of spoiling everything for the rest of us.  If there’s a storm predicted, then there’s a worse one behind it.  If the morning goes well something bad is due to happen in the afternoon.  If our team is ahead, they’ll tire in the second half.  Housing boom coming say optimists?  Let’s give the pessimists equal time.

• Foreign economies like Greece and Portugal are spinning out of control and will affect us in unforeseeable ways
• Sure there are low interest rates but the banks are so picky about credit scores that mortgages are not obtainable for many people
• The national debt is at record levels and is growing fast with China holding much too much of it
• The jobs picture is good but corporate profits are being squeezed by the global economy.

It is certainly advisable for all would be prognosticators to beware of reckless and wishful thinking.  If the last few years have not taught real estate speculators some humility I can’t conceive of what will.  I present these differing points of view here not because I favor one over the other but because I feel it is of value to consider the real estate market from all angles.  It is possible to gain and lose large amounts of money in real estate and wishful thinking has no place for prudent buyers whether buying for investment or to have a home.

Data, surveys and studies can be twisted and spun innumerable ways.  Housing has been strongly affected by the fact that the number of unemployed young adults living with parents has doubled since 2007 from 1.3 million to 2.5 million according to Moody’s Analytic data.  Many are unemployed or underemployed.  Undeterred, the optimist will stress that household formation is now hovering near pre recession levels.  Economic and household growth are Siamese twins irrevocably bound together and interdependent.

We’ll keep watching.  Problems in the housing sector are disproportionately affecting lower income and minority communities.  The pendulum has swung too far the other way from the time when it was necessary to correct a situation that was spinning out of control.