Low Household Formation Bad News For Housing
Realty Viewpoint: Low Household Formation Bad News For Housing
Between the birth rate and immigration, legal and illegal, the U.S. should be adding about 1.2 to 1.5 million households annually. In 2007, we added half that number. What does household growth mean to housing?
Household growth is a good indicator of the economy. When money’s tight, people tend to double up. More grown children fail to launch and stay put in their parents’ basements, more renters sign new leases, fewer first-time homebuyers come to the table, which stifles move-up buyers, and the final result is that homebuying stagnates.
In December, there was a 9.6-month supply of homes on hand. That’s about three months too long to be a healthy market, and low household formation is going to make things worse for housing, particularly for existing home sales.
Why? “New households primarily purchase existing homes,” says spokesperson for the National Association of Realtors Walt Molony. That said — how many more existing homes do we need on the market to sell? The answer is — with the current oversupply — about zero. That’s bad news for homeowners who want to put their homes on the market this spring. They’re heading right into a saturated market.
And the news isn’t much better for new homes. Builders are also sitting on a 9.6-month supply of homes as of December. New homes account for about 15 percent of transactions, so based on that rate, builders really only need to build about 100,000 new units this year. New homes appeal primarily to trade-up buyers. The new home market is dependent on existing home sellers who want to trade up for most of its customer base.
One ray of hope is that lower interest rates have stimulated mortgage application volume three percent above the previous week, says the Mortgage Bankers Association’s weekly application survey. Purchase applications rose by 12 percent, while refinancings fell one percent. Any gain in applications is positive, and applications are likely to go higher on the news that FHA and Fannie Mae and Freddie Mac loan limits have been temporarily raised. Watch Realty Times’ Interest Rate Update daily to see the trends in the mortgage market.
source: http://realtytimes.com/rtpages/20080213_realtyviewpoint.htm
