As you all should know, housing is our biggest purchase. The millennials take the lead position in the title because they are approaching their 30s which is prime time in home buying. The "ROU" is their byte language. It means the rest of us.
Leading into this moment, the housing market is not looking very good. Contrary to the financials reported by home builders which indicates positive earnings, the foundation in housing is precarious. Renters comprise 44% of households. Their numbers are increasing as many firms are following Blackrock's example. The firm purchased distressed homes after the recession in 2008. They have turned them into rentals. From that time rents have skyrocketed as well as housing costs for new construction. Together, first time buyers are being squeezed out of the buying market. There are other reasons.
After the recession...
the wave of buyers leaving or being expunged from their new homes overwhelmed the housing market. Occupancy levels hit all-time highs for rentals. This allowed landlords to raise prices. As stimulus hit the economy along with low interest rates, builders found new problems. Labor was displaced. Land costs rose. Regulations were put in place and banks tightened their lending standards. All these added costs. Builders turned to the high end retail market because it possessed the best choice in those conditions. They had success. They stayed with what worked. No new entry level homes were built. The rise in prices was met with a limited supply-an equilibrium was reached. This housing formula left our growing population on the outside looking in.
Flash Forward
We have had over ten years of limited new homes in the entry level. At the same time housing costs kept rising. Of course, the Federal Reserve never considers shelter costs in their phony equation for inflation. However, we have to live with what it is. Renting eats up half of many wage earners income in many locations. In addition, income increases have not come close to price and rental rises. This is why rental occupancy keeps rising as a percentage of all households. We have a situation where potential buyers cannot purchase because they cannot afford the price of housing today. This is the true picture of the housing market across the nation. Many renters are prisoners in their apartments. They cannot escape their rental purgatory. For others it meant a big decision: Return home to live with parents? Try living out of the car to save enough to return to rental living? Maybe buy a van or motor home, park on the street and save for a house? Some just found a concrete space as we see homelessness everywhere.
Latest report
The latest numbers on starter homes keep declining in inventory. This shortage gets more alarming each year. It is down another 12% in 2019. These are homes priced under $200,000. The shortage in supply continues into the mid-range level. The price range here expands from $200,000 to $750,000. They declined in inventory another 10%. When rates are low and few homes are available, guess what happens? Prices rise!
Now, the shills say, "Wait! The millennials are coming!" They are helping. Around 37% of this generation (Y) are home owners. Their predecessors, generation X are the first to show cracks in the American way of life as their standard of living is less than their parents. I say it began with the boomers. The next generation (Z) are also experiencing a decreased way of life. The millennials are according to stats even larger then the boomer generation. If that is so, I do not see any significant production to our economy and the housing segment from their numbers. With that said there are some positive changes within the market.
Altura, D.R. Horton...
are two home builders who are adding to entry level homes. Keep in mind the medium price for a new home is now $311,000. This is according to the National Association of Home Builders (NAHB). Dear Reader, you would have to have an income of $67,200 a year to qualify and no other debt like car payments, credit debt, school debt and so on. Anyway, the two builders are having success with starter homes. Their success is being copied by other builders. This is a good sign, but remember 56% of us are not participating in the American dream. One other aspect. Our seniors are opening their homes to their children and grandchildren. This is one reason why there are fewer and fewer homes for sale. In our nomadic society, people are staying put. In a way this has helped local economies as people are building small, tiny homes on their property for their family to reside. Nevertheless, the shortage of homes will continue into 2020. This will cause prices to continue to rise in housing. The chain in housing-starter, mid-range to high end is broken. This is great for present home owners as their nest is becoming a nest-egg. However, sadly, in many locations rising taxes are creating a new problem to home ownership. This is another cloud on the horizon.
