Trends that are Reshaping the Housing Market

Many things impact the housing market. Some are pretty obvious, like how big or small the demand is for new housing. Some influences are harder to spot, like the overall debt of current households. Think of it like a stew: carrot slices are easier to see than the pepper flakes, but they both play a big part in how the overall meal tastes. When it comes to the housing market stew, even the least obvious of trends can have a major impact. It all boils down to the number of houses being built, bought, and rented in any given market. So where’s the US housing market right now, and what ingredients are lending its distinct, current flavor?

The American Dream

Studies show homeownership is still a major goal to the majority of Americans. Despite the housing disaster not too far in the rearview mirror, and rising rent and student debt for young adults, it is still a dream many seek to make a reality. On the one hand, Millennials are finally obtaining the jobs and steady income necessary to leave the nest and have places of their own. On the other, they have more debt than any generation before them and the cost of renting is, in many cases, too high to allow for any saving for a down payment. Time will tell if Millennials will add to the increasing number of American renters, or assist the home ownership rate to finally rebound from its 48-year low of 63.5 percent. They have the numbers to make it happen. After experiencing record low numbers of American households all through the Great Recession, 1.3 million new households were formed in 2015, a return to normal pace of growth. When Millennials, defined as those born between 1985 and 2004, were forced to return home to wait out the economic recovery, household formation suffered. With the economy finally (somewhat) on the mend, and as the generation reaches an age when nearly all will be moving out on their own, household formation is expected to average more than 2 million annually across the next several years. More households, more homes (or, at least, more rental units).

If You Build It, They Will Move

Though homebuilders broke ground on 1.1 million properties last year, that number is still among the worst in past 50 years. In recent years, apartment building made up more of that figure than single-family homes, but single-family homes are starting pick up. That said, builders are focusing on quality more than quantity. Instead of building more homes, they are building homes that cater to wealthy buyers. That way, the profit margin is higher per house. In addition, home sizes are growing. Last year, the median size of a new single-family home broke records at 2,467 square feet. Multifamily units have started to shrink in size, but this is most likely caused from a shift in types of units. Before the housing bust, condominiums outnumbered rental apartments, a trend that has now flipped. Essentially, the market is seeing larger, but fewer, houses and smaller, but additional, apartments.

As more homes are being built, the labor demand will grow to match. Layoffs during the bust, however, resulted in aging construction crews. In 2007, 10 percent of building trades workers were over 55. Now, that number is 16 percent. In addition, only 13 percent of newly-hired construction workers were under 25. Utah, our home state, is already seeing the effects of this labor shortage. It has resulted in longer building schedules, particularly for trade contractors. This will only worsen if new labor is not identified. The industry should experience a shift, however, if it focuses on vocational training and immigration moving forward. Another key area of opportunity is opening the industry to women. Currently, only 3 percent of the construction workforce is made up of women.

Show Me the Money

Finances also play a key part in the housing market. Simply put, no money, no houses. The future of the housing market will be decided by whether rental rates continue to soar, or homeownership finally begins to make a comeback. High rent plays a large part of that. As homeownership became a thing of the past for many families when the market burst, renting became the name of the game. As demand went up, so did the price, since supply was temporarily limited due to fact it takes a significant amount of time and investment to increase supply. Even as the economy began to pick up, the number of renter households paying at least half their income in rent went up, reaching a record total of 11.4 million in 2014. In addition, only one fourth of income-eligible renters receive public assistance. An inability to provide stable housing often increases dependence on other social programs, raising costs for taxpayers over time and making it harder for anyone to afford homeownership. In order for homeownership to grow, renters need to be able to save enough money to afford purchasing a home. This purchasing power will shape the market in years to come, for better or worse.

All of these trends are constantly fluctuating, influencing the housing market and each other. Whether you are in the market to buy, rent, sell or lease, it is important to keep an eye on these factors and their impact both individually and as a whole. It is a key way to make sound decisions that will provide for you and your own household for years to come. It can be daunting, but luckily, we at GCD have years of experience evaluating and predicting the housing market not just in Utah, but the US as a whole. Consider us the official taste testers of the housing market stew. In addition, we offer both multi-family and single-family housing developments, so whatever your housing needs, we’re there with a solution. Peace of mind and variety – now that sounds like a winning combination.