It used to be that when you moved, you rented an apartment or you bought a house so that you would have somewhere to stay during your residence in your new area of choice. Now, however, people are choosing their new homes and living areas based on where there is already room available, thereby contributing to the continuing beating that the new construction market is taking in both the single- and multi-family markets[1]. While multi-family housing and rental properties are definitely the types of investments that show the most promise for the coming year according to most real estate investing experts and analysts, the demand for new construction in these areas is not what you might expect given the rising numbers of people who – at least on paper – should be looking for something to rent. Why? Because the newest nationwide trend is to simply “double up” with family or friends until you are absolutely certain that where you are living now is where you want to stay.
According to economists with IHS Global Insight, a forecasting firm, “the change we’ve seen is unprecedented.” In fact, household formation is at its lowest point in more than 60 years. Pat Newport, an IHS economist, reports that in 2009 and 2010 fewer than 400,000 households were formed each year, while historically the country has added around 1.3 million new households each year. The impact of this dramatic drop not only impacts new construction but also the more general demand for housing. If Americans were forming new households at the usual rates, the “glut” of new construction that is currently preventing homebuilders from developing more properties would soon subside. However, that glut is likely to remain indefinitely as long as household formation rates remain so low. Only “niche” homebuilders who have a new and unique product to offer homebuyers are likely to thrive in the current environment, said Newport.
Are you currently investing in new construction?
Thank you for reading! Your comments and questions are welcomed below.
[1] http://minnesota.publicradio.org/display/web/2011/01/11/new-households-contruction-economy/
Allow me to put on my “rocket science” hat…since the following is such a complex concept:
If a person does NOT have a job he/she, more than likely, CANNOT pay their current mortgage and keep their home. If he/she does NOT have a job, he/she CANNOT form a new rental household..even if they relocate to existing jobs UNTIL they feel comfortable in their new locale including the anticipated longevity of their new employment.
Pouring out “new” data such as “drop in housing formation” or historic decreasing values of housing is GREAT for the statistician but not so for folks living in the nuts and bolts world of increased joblessness. Our economy has probably had higher rates of inefficiencies than it does now but those “inefficiencies” correlated to higher employment rates. The push for greater productivity has its absolute limits at which point the until the old fshioned “law of diminishing returns” kicks in.
Of course, the next step for the analyst is to track how fast and in what sectors of the economy he/she can move my client’s/employer’s money so as to minimize decreases to ROI. In this scenario, expanding employment ceases to be a primary concern. Are we at this point in our current economic doldrums?
A large empty lunch bucket just dropped on my head and broke my “rocket science” hat…but, I’m OK!
After reading this I am thinking the thing to do is what someone suggested. Give out green cards to those who buy a home in the USA – allow illegal aliens amnesty if they do buy a home. Anyone wanting to immigrate would need to buy a home and they get a green card.