On June 23, 2009, The National Association of Realtors (NAR) released May’s existing-home sales activity. Calculatedriskblog.com has graphed the existing-home sales and new home sales through May. The gap between the two has grown to interesting proportions. What will change in the housing industry?
The following report states that the outlook in demographic drivers is a positive one for the future.
While the economic crisis has dampened household growth, the sheer size of the echo-boom generation will give a powerful boost to long-run housing demand. A severe and prolonged recession may, however, reduce immigration—a key driver of household growth—or lead to an extended period of lower headship rates. And the depth of the downturn may, for the first time in at least 40 years, reduce the real median household incomes of each 10-year cohort relative to its predecessor by 2010. Rapid growth in the population under age 45 and over age 65, as well as the rising minority share, will shift the composition of housing demand over the next 20 years. These changes in the age distribution will mean greater demand for both starter homes and rentals, and for seniors housing. In addition, as the baby boomers and older generations begin to turn over their homes to younger households, adjustments to the existing stock are likely, both through remodeling and pricing. The first wave of change will occur in the inner suburbs of large metropolitan areas where people now in their 70s and 80s are concentrated, then fan out to the outer suburbs as the baby boomers start to downsize.
A couple of months ago, I found a blog site called Calculated Risk. The blog is a great source of current information about housing and the economy. Check out this post regarding a Housing Activity forecast. Also, see the graph about the Existing Home Turnover Rate.
Here is an excerpt from a blog I read this week about the financial crisis.
The Financial Crisis: Bad and Getting Worse, but Put Away that D-word
Published: January 21, 2009 in Knowledge@Wharton
Too Many Homes
“I think [foreclosures are] a very important problem, but I think it’s being worked out by the private sector,” Siegel says. The root problem, according to Siegel: There are too many homes and too many were bought at inflated prices. “The price of homes has to fall. There’s no way to stop that from happening.”
Blume, too, doubts the government can effectively stop the wave of foreclosures. With the economy worsening and unemployment rising, fewer and fewer people can afford the homes they have, and many potential buyers lured by bargain prices can’t find banks to give them mortgages. “I have not yet seen a plan to help reduce foreclosures that gets to … the problem … that people bought houses they could not afford. If you reduce the interest rate a little bit, they still can’t afford them.”
He concludes that there may be no alternative but to let the housing market adjust on its own. “Ultimately, all these houses will be off the market,” Blume says. “Somebody will buy them and then the market will stabilize.”
But there’s no telling, he adds, how long that will take, or how far home prices will have to fall.