Conference Presentation, Panel, Roundtable, Fireside Chat
Real Estate: Housing Builds a New Foundation
- Home values are projected to rise approximately 3% (slightly over 3%) next year, roughly half the pace of the previous year's 6% growth, with year-over-year appreciation expected to drop out of double digits within a few months.
- Total housing unit sales are anticipated to remain flat or experience a minor decline of approximately 1% relative to the previous year, staying near the 5.0 to 5.1 million unit volume in 2014, with first-time buyer activity not expected to return for at least two or three years.
- Sales volumes in future years face challenges from the end of the downward mortgage rate trend, with rates projected to rise to 6% in a few years, potentially locking in current low-rate homeowners and making it difficult for them to move.
- Housing demand is shifting from single-family ownership to the rental side and multifamily properties, driven by a fading investor and bargain hunter phase that is transitioning into a renter-driven recovery phase.
- Apartment construction is expected to remain at a 15-year high in 2013, whereas single-family home construction will continue to struggle until employment and income growth for young people improve sufficiently to drive household formation.
- In expensive markets like San Francisco, Seattle, and Boston, long-term affordability remains constrained by supply, necessitating changes to local building regulations and zoning rather than geographic shifts.
- A significant supply overhang is expected as investment properties owned by funds with specific lifecycles become available, while long-term affordability in these markets may also be affected by a radical demographic shift over the next decade.
- Baby boomers are projected to sell homes to monetize capital gains and become renters due to low retirement savings, adding supply, while the market is not expected to see another year of 1.5 million new home starts in the next generation.
- Future housing preferences are expected to favor smaller living units like micro-apartments and tiny homes as regulations adapt for higher density, alongside a rise in multi-generational homes with self-contained units.
- Home builders are expected to continue delivering larger homes with finished basements and shift the housing mix toward more up-market, larger, and more expensive homes to create value given low hard costs per square foot relative to land.
- Lending standards and FICO requirements are expected to loosen over time as banks seek to replace lost refinance demand, with subprime mortgages returning at volumes and risk levels below the 2005-2006 period.
- GSE reform is anticipated to be completed within the next year or so, though specific bill passage is currently doubtful, with a risk of delays that could leave the system in a "limp forward" state for a decade.
- Mortgage rates are expected to rise if GSE reform adopts a public financing scheme with upfront government guarantees or if the entities move toward such a model, potentially increasing relative costs compared to the current scheme.
- The housing recovery is expected to be unstable in the short term, with a lack of desire among realtors for a return to double-digit price appreciation due to the risk of making markets unaffordable and uncontrollable, though four out of five panelists expressed optimism regarding the immediate future.