The US Housing Market Doldrums - What Does it Mean For Investors?
June new house starts were up a large percentage, but only to a very small number -- 333,000.
Where is housing headed? As I have written before, I believe we have entered a very different housing market.
Who could have believed that we would move from a peak of over 1,300,000 new homes per year to today's annualized number.
And by the way, 333,000 annualized starts is up from May's 267,000 number.
At the same time, despite the discouraged mind set of the population there is evidence that the economy is slowly trudging to a better place.
In my opinion, the U.
S.
housing market is permanently changed at a level not recognized in the press or industry so far.
Even as I'm writing this the article citing these statistics was stating that a "full" recovery to previous housing growth would take three or four years.
This is ignoring the demographic and growth factors at work in our economy.
Even if one assumes that we are going back on the same population growth track that existed previously the amount and type of housing the nation will need is going to be much different.
The average home will be much smaller.
Urban is going to be the preferred location.
The net effect is more households under the same roof space in my opinion.
If this is the case, new housing will be highly focused on multifamily and conversion of existing housing for greater density.
This could imply years and perhaps decades of new single family housing growth in the neighborhood of 400,000 to 700,000 new units per year.
I would expect the new normal to be near the high end of this range, but not greater.
On the other hand, I expect the existing housing market to rebound in a relatively short period of time to near pre crisis levels as the market begins to find ways to convert the same homes into more households to meet the true new demand.
Smart investors can find real opportunity in this concept.
The real key is keeping in mind the idea of more households under the same roof.
Investors that identify communities that will allow the density and floor plan concepts to deliver the product stand to achieve outsized gains over investors who come to the market late for this type of investing.
These converted homes will drive more cash flow and more value per square foot than the one family homes that they were in the past.
Where is housing headed? As I have written before, I believe we have entered a very different housing market.
Who could have believed that we would move from a peak of over 1,300,000 new homes per year to today's annualized number.
And by the way, 333,000 annualized starts is up from May's 267,000 number.
At the same time, despite the discouraged mind set of the population there is evidence that the economy is slowly trudging to a better place.
In my opinion, the U.
S.
housing market is permanently changed at a level not recognized in the press or industry so far.
Even as I'm writing this the article citing these statistics was stating that a "full" recovery to previous housing growth would take three or four years.
This is ignoring the demographic and growth factors at work in our economy.
Even if one assumes that we are going back on the same population growth track that existed previously the amount and type of housing the nation will need is going to be much different.
The average home will be much smaller.
Urban is going to be the preferred location.
The net effect is more households under the same roof space in my opinion.
If this is the case, new housing will be highly focused on multifamily and conversion of existing housing for greater density.
This could imply years and perhaps decades of new single family housing growth in the neighborhood of 400,000 to 700,000 new units per year.
I would expect the new normal to be near the high end of this range, but not greater.
On the other hand, I expect the existing housing market to rebound in a relatively short period of time to near pre crisis levels as the market begins to find ways to convert the same homes into more households to meet the true new demand.
Smart investors can find real opportunity in this concept.
The real key is keeping in mind the idea of more households under the same roof.
Investors that identify communities that will allow the density and floor plan concepts to deliver the product stand to achieve outsized gains over investors who come to the market late for this type of investing.
These converted homes will drive more cash flow and more value per square foot than the one family homes that they were in the past.
Source...