Housing Data Confirms Contradictions, Favors Rentals
As property managers we want to keep up on the trends in our local economies. “The trend is our friend” is a mantra that enlivens our professional awareness.
The final quarter of 2014 has uncovered some important national trends as well. Building permits, an important signal of future construction, increased by 4.8% in October to a 1.08 million rate.
This rate of growth in monthly building permits expanded at the fastest pace since June 2008. Yet the number of new construction single-family housing units rose only 4.2% in October 2014.
During the first 10 months of 2014 new single-family housing starts were up a monthly average of 5.3% compared to the same period in 2013. So October’s 4.2% increase actually was below that average.
In an economic update by Regions Financial of Birmingham, Alabama it was strongly suggested that “…aside from the jump in single-family starts being concentrated in the South, the starts data get no support from the permits.”
Regions had reminded its customers in recent months that single family starts have been growing at a faster rate than single-family permits which the October numbers lifted to a new level.
The firm’s takeaway point was “While single-family permit-issuance numbers have improved, they are nowhere near a level that suggests the October starts number is sustainable”.
Seen from a reverse direction, just because new housing permits have increased doesn’t necessarily mean that the brisk pace of new, single-family homes being built will continue to grow at the same rate.
Barclays’ Blerina Uruci was quoted in The Wall Street Journal on Nov.20, “We maintain our view that housing activity continues to recover, although the pace of recovery remains slower than in the previous couple of years.”
As I’ve pointed out in articles the housing market faces a kind of “double negative” in the current economic climate. Fewer potential buyers can qualify for mortgages and those who can are buying up the existing home supply causing prices to rise to unaffordable levels.
Now that home prices have risen substantially during the past 5 years with fewer distressed homes to buy, the housing market is changing yet again. The number of sales to investors increased in October from September, according to the National Association of Realtors, but the mix is different.
“We’ve seen buying activity slowing down among the largest institutional investors, and some of this activity (is being) replaced by mid-sized companies and individuals looking to buy and rent out single family homes,” said Rick Sharga, executive vice president of Auction.com, said in a CNBC interview.
“The asset class seems likely to continue to grow, but the share of inventory purchased by the largest funds appears to be shrinking.” This implies the investment value of buying a home may be topping out.
Thus the risk that if another housing downturn occurs in the next few years, today’s buyers may find they are “underwater”. That means the amount they owe will be more than their home’s value.
All these potential anomalies facing today’s home buyer bodes well for the rental housing market.
Property owners and managers should see a continuing steady stream of long-term renters. If you’re marketing your vacancies effectively you’re likely to fill them faster in the months ahead.