60% of all existing homes will be 40 years or older by 2019!

2014 and beyond will be a new horizon for the real estate development industry. It will not be business as usual.

The following questions are not new but the answers may very well be different. Housing is striving to gain a foothold and lead the nation to recovery. After six years, the following questions remain unanswered:

What to build?

How to build?

When to build?

Where to build?

We need to begin the discussion by considering the distribution of housing stock:

·         11% of the US homes (14 million) were built between 2000 - 2010

·         26% of the US homes (33 million) were built between 1980 - 1999

·         31% of the US homes (40 million) were built between 1960 – 1979

·         16% of the US homes (21 million) were built between 1940 – 1959

·           9% of the US homes (11 million) were built between 1920 – 1939

·           7% of the US homes (9 million) were built before 1919

Source: US Census Bureau 2013 Housing Profile and REALTOR®

2010 - 2019

This decade is half over so we can use actual numbers, add a reasonable projection and guess the remaining years.

2010                           614,000

2011                           630,000

2012                           723,000

2013                           898,000

2014                           1,000,000 (maybe)

2015 – 2019              @ 1,200,000/year     (6 million) (Note: why would it be any higher based on current economic projections)

The total number of housing starts for the decade would be 10,000,000 rounded up.

The following estimate represents the annual demand for new housing units (in millions)
Source: Credit Suisse, March 9, 2012

Household formations                             1.31
Net Removal of housing units                 0.26
Trend growth of vacant units                   0.05
Placements of mobile homes                 (0.14)
Units started but not completed              0.06

Required ANNUAL number of housing starts              1,540,000*

* I have been using 1,200,000 annual housing starts as the benchmark for a thriving economy.

In the perfect world of data analysis, we will have a 2,000,000 new housing starts shortfall based on the anticipated population growth.

Existing housing stock is getting older and families are staying in their homes longer.

Many Baby Boomers will be retiring in-place and Millennials remain on the fence.

With this basic background, the above questions have to be answered by more questions:

WHERE TO BUILD?

LOCATION – LOCATION – LOCATION

OR

AFFORDABILITY?

Real estate has always been about location, location, location. Also, the industry has always been fragmented based on markets but in the future, the industry will be further defined by market segments.

But for the buyer, it is always community, community, community. Affordability is not the least expensive home but a home a buyer can afford on a monthly basis in the community of choice.

 Typical criteria buyers look for when they are buying a home:

·         Top rated schools

·         Recreation facilities, parks, open space

·         Views

·         A variety of shopping

·         Homes with consistency of architecture

·         Economic stability within the community

·         Public transportation availability

·         Health care alternatives

·         Quality jobs

·         Location of the home within the neighborhood

·         Environmental concerns i.e. hazards, flood plains, flight path

·         Crime

·         Noise

·         Landscape features

·         Business climate

·         Cost of energy i.e. natural gas, electricity, oil

·         Proximity to job

·         Home appreciates faster because of its location

LIVE – does the location provide a livable environment for raising a family, becoming active in the neighborhood and joining a church community?

WORK – are there jobs close to where you live? Can you get to those jobs without driving long distances? Is your community thriving with sound economic policies?

PLAY  - Do you live to work or work to live? Are there recreation areas, open space, and cultural opportunities within walking distance or easy access by car?

SHOP - All types of shopping should be within easy access. Is there a mix of uses in one place so that “one stop shopping” is achieved?

LEARN – education opportunities for all age groups. Technology will force us toward continuous learning online but our children will always be going to a brick and mortar school – let it be the best your community has to offer..  

WHAT TO BUILD

Builders have included too many bells and whistles as standards and buyers are unwilling to accept less. First time homebuyers will not be able to afford the new standards.

As an example: A/C used to be an option in cars and in homes!

Design and material use have been elevated as a key component for local government approval.

How about “nice but not necessary” to bring home prices down –

The housing industry always relied on the market to dictate product, features and finishes. If we don’t return to the basics, today’s buyer will not buy because they can’t afford their wish list and government will require more for less.

Unfortunately, today’s first time buyers will not make concessions and they want instantaneous satisfaction. Otherwise, they will move on.  

WHEN TO BUILD

If you build it, will they come? Yes.

HOW TO BUILD

With quality

Housing – Next Phase

Small markets will again be the attraction – people will stay close to family and friends
Commercial Developers will dominate the urban markets

The move-up market will dominate the suburban markets
Sales will become virtual as builders shy away from traditional model centers

 

Do you really think the college graduating classes from 2008 – 2013 are optimistic about buying a home?

Do you think they have the same dreams as their parents?

If illegal immigrants are allowed to remain, they will replace those in need of shelter. The intended consequence is the collapse of the housing industry. Even if the illegal immigration is temporary, the affect on housing will be long lasting.

I do not see housing leading the recovery and we are still talking about a recovery 6-years since the great recession statistically ended

I do not expect builders will increase production anytime soon

National builders will expand into sub-markets to survive

I expect most builders to concentrate on the move-up market

I expect the first time home buyer to be shut out for a long time

I expect material and labor shortages will prevail in the short term  

“Where will our children Live” will once again be the motto for the future!