New home sales for February were stronger than expected, at an annualized pace of 539,000 units vs. 465,000 expected. This is good news because it is the highest number since early 2008. However, the chart below shows that we are still dealing with a depressed single-family housing market.
First, it is clear that we are very far below the peak recorded near 1.4 million in the mid-2000s. Second, if we dismiss that period as an irrational bubble, it is still a fact that a 539,000 reading is in the bottom half of the historic range of 400K-800K. In fact, if we ignore recessionary periods (shaded areas), new home construction has not been this low since the 1960s when the US population totaled under 200 million vs. about 320 million now and when household size was larger than it is today.
It is true that multi-family construction is now more prominent than in the past and that it mitigates the sluggishness in single-family construction. As seen below, multi-family housing volumes now exceed the high preceding the 2008 crisis.
But if we use a back of the envelope approach and use a figure in the low 300,000 multi-family annual units as an historic average, we could say that the last multi-family reading is about 150,000 units above average. We could then argue that these 150,000 were ‘shifted’ from single-family homes. (That may be a generous assumption, considering that a large share of these multi-family buildings are destined to be rentals. Nonetheless the higher demand for rentals can also be considered a secular ‘shift’ that should be counted.)
Without this shift in living preferences, we could then argue that single-family sales would have been about 150,000 higher and closer to a 700,000 annual pace. That is a much better figure than 539,000 but still not very robust compared to the past, given low interest rates, the growth in population and the decrease in household size. In my view, keeping these factors in mind, an adjusted figure north of 800,000 single-family units would be closer to the historic norm. We should therefore be looking for a monthly report of at least 650,000 single family homes before we can talk about a return to normal.
In US Housing and Demographics, I made an argument three years ago that the housing market would be weak until at least 2020 because of adverse demographics. So far, it looks like the recent data supports my thesis. Homebuilder stocks have risen since then. This is based in part on optimistic anticipation of greater home sales, and in part on the fact that homebuilders have been quite adept at identifying and directing their efforts at higher growth areas of the country.
The demand is huge but poor infrastructure, antiquated business models, government bureaucracy and lack of financing are all impediments.
When real estate developer Xrbia recently launched a 170-acre housing project in Hinjwadi, a suburb on the outskirts of Pune in Maharashtra, all the 3,400 apartment units were sold within a week. The biggest unit in this apartment complex was 550 square feet and the smallest was close to 250 square feet. The units were priced at Rs. 22 lakh (around US$40,000) and Rs. 9 lakh (US$ 16,000) respectively.
Pointing to the quick sale of these homes, Rajesh Krishnan, managing director and CEO of Brick Eagle, a Mumbai-based land banking firm that acquires land and promotes affordable housing in partnership with developers, says: “In a way, this shows the demand-supply gap [in the affordable housing segment in India]. People physically queue up under the sun to apply for allotment of these houses.” He considers affordable housing in India to be homes that cost less than US$40,000. READ MORE.
There has been much speculation that single-family housing prices could take a hit as increasing numbers of baby boomers downsize and leave larger homes behind as they move into retirement age. That assumption is too general to be entirely accurate, according a pair of major economic papers on the topic of aging and property prices.
What is clear is that this ongoing population shift holds important ramifications for the multifamily property sector, including senior and assisted living facilities. And it is also becoming an issue of increasing importance for commercial real estate investment researchers.
“As Baby Boomers enter retirement age, many ’empty nesters’ may downsize, leaving their current homes in favor of smaller condos or age-restricted communities. Therefore, prices for large single-family homes located in high property tax areas could be under pressure over the next decade,” Tim Wang, senior vice president and head of investment research for Clarion Partners in New York, told CoStar News. “However, seniors today are often healthier and live longer; because of this we believe it is still premature to invest in assisted living or nursing homes.” READ MORE.
Detroit’s story has encapsulated the iconic narrative of America over the last century— the Great Migration of African Americans escaping Jim Crow; the rise of manufacturing and the middle class; the love affair with automobiles; the flowering of the American dream; and now . . . the collapse of the economy and the fading American mythos. With its vivid, painterly palette and haunting score, DETROPIA sculpts a dreamlike collage of a grand city teetering on the brink of dissolution. These soulful pragmatists and stalwart philosophers strive to make ends meet and make sense of it all, refusing to abandon hope or resistance. Their grit and pluck embody the spirit of the Motor City as it struggles to survive postindustrial America and begins to envision a radically different future.
RIO DE JANEIRO – Almost nine out of every 10 people in Latin America will live in a city by the year 2050, and the region should use this moment of economic stability and slower population growth to make those cities more equitable, said a UN report issued Tuesday.
The report by the United Nations Human Settlements Programme said the region is already the world’s most urbanized, with 80 percent of the population living in cities. This growth came at a cost: it was “traumatic and at times violent because of its speed, marked by the deterioration of the environment and above all, by a deep social inequality,” the report said.
“The main challenge is how to develop in a way that curbs the enormous inequalities that exist within cities,” said Erik Vittrup, the head of human settlements of UN-Habitat’s regional office for Latin America and the Caribbean. “There are other cities that have been through these urban transformations and don’t have this level of inequality. It goes against the economic model in Latin America. Cities didn’t grow more inclusive; the prosperity wasn’t for everyone.” READ MORE.
China is entering a “danger zone”where a financial crisis may become more likely because of increases in loans and property prices coinciding with an aging of the population, a Bank of Japan (8301) official said.
“If a demographic change, a property-price bubble, and a steep increase in loans coincide, then a financial crisis seems more likely,” BOJ Deputy Governor Kiyohiko Nishimura said in a speech for a conference in Sydney, posted on the central bank’s website today. “And China is now entering the danger zone.”
China is at risk of emulating crises in Japan in the 1990s and the U.S. in the 2000s, according to Nishimura, who cited a Chinese working-age population that is “close” to peaking as a proportion of the total. Demographic changes can provide fertile ground for “malign property bubbles” because of the effect on demand for real estate, he said. READ MORE.