Housing’s importance cannot be questioned, though there is considerable nuance to where the market is heading.
Last week, we looked at the latest study from the Demand Institute, and its eye-popping predictions on where home prices are heading for the nation’s largest metropolitan markets.
The Demand Institute’s study, though, was far more detailed than those statistics, so we decided to take a closer look at some of its other important findings on the housing market:
1. Housing is an Engine – U.S. consumers spend roughly $2 trillion a year on housing – that’s right, TRILLION – which then trickles down into billions more on construction, banking, automotive, retailing and telecommunications; so in short, housing is a behemoth of an economic engine.
2. Housing is Unequal – The vast majority of housing wealth is concentrated at the top of the economic ladder. The top 10 percent of homeowners control 52 percent – aka $4.4 trillion – of total housing wealth, while the bottom 40 percent hold just 8 percent, or $700 billion.
3. Housing Will be “Recovering” For Some Time – Home prices may have bottomed in early 2013, but we’ve still a long way to go before we reach 2006’s inflation-adjusted peak. Unadjusted for inflation, median single-family home price will reach that peak by 2018, but adjusted for inflation, they’ll still be down 25 percent.
4. Housing Formations Will Pick Up – Housing formations have been dragging along since 2007 for two reasons: one, the U.S. vacancy rate remains high; and two, Millennials are not forming households (aka, moving out of their parent’s homes). With the economy improving, though, that will likely change, and formations will near 1.5 million by 2015.
5. Housing Will Remain Diversified – Although formations will rise, the homeownership rate will remain relatively low, and will probably not rise above 65.5 percent (compared to the 69 percent of the bubble years). By 2018, the Demand Institute estimates, 30 percent of new home completions will still be multifamily units, with the majority being rentals.
6. Housing is a Burden – Housing costs are mounting for more and more people. A 2011 analysis from the Harvard Joint Center for Housing Studies found that 37 percent of households had a moderate or severe housing cost burden (a moderate burden being when 30 to 50 percent of pre-tax income went to housing expenses, a sever burden when more than 50 percent went to those expenses). The Demand Institute’s survey, though, found that number has ticked up to 41 percent, with 25 percent having a moderate burden and 16 percent a severe burden.
7. Housing is Still Appealing – Even with all the aforementioned details, though, American consumers still aspire to own a home. Seventy-seven percent, in fact, see homeownership as “an excellent investment,” and 74 percent believe that homeownership “should be an important long-term goal.” Those numbers, the Demand Institute notes, have changed little over the years.