Conference Presentation, Panel
Housing: An Asset Class or a Place to Live?
- The housing market is expected to continue improving and achieving a sustainable recovery within the near future, potentially extending to the end of the current calendar year, driven by expanding micro-markets and global demand.
- Home prices are projected to rise significantly, with double-digit inflation in the sector anticipated within the next year; specific markets have already seen price increases of 20% to 40%, and rates could climb to 5% or 6% if current government financing support ceases.
- A severe shortage of supply is predicted early in the recovery cycle, particularly in regions like Los Angeles County where permit issuance may fall below 50% of 25,000 units due to regulatory constraints on high-rises and redevelopment agencies.
- Foreign investment is forecasted to surge into the U.S. market, potentially shortening the 25-year GSE wind-down period to approximately two years, while modifying FERPA could bring waves of capital, notably affecting affordability in markets with high Asian buyer participation.
- GSE reform and FHA legislation are expected to advance through subcommittees and the full House within the current calendar year, though Senate action may face delays or amendments.
- Interest rates are anticipated to remain artificially low due to government financing, creating a "government-contrived" recovery that may struggle to sustain without rising incomes, with a risk of buyers becoming unable to qualify for loans as rates normalize.
- Single-family rental investments face risks of turning very low or yielding poor returns due to 20-year high levels of multi-family construction and potential shifts in vacancy and credit factors.
- Investor sentiment suggests caution regarding market assets, with expectations that investors active between 2009 and 2011 will begin exiting or planning exits, while new REITs are expected to enter the market.
- Regional disparities are highlighted, with markets like Miami and South Florida described as "on fire," while Palm Beach County and San Bernardino face potential "disaster" states or extended recovery periods compared to stronger areas.
- The homeownership rate is expected to rise from current levels, though it may not reach the previous peak of 69%, contingent on economic improvement and the ability of consumers to qualify for market-rate loans.
- Risks include a potential "shock factor" from rapidly eliminating GSEs, the possibility of another 2007-2008 style crash without policy changes, and the geopolitical uncertainty that may keep interest rates from aligning with the broader economic recovery.
- Long-term projections suggest that if interest rates remain at current levels indefinitely, rising home prices will eventually force land off bank balance sheets into developer hands, shifting land values and asset liquidation dynamics.