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Justin Reginato, Ph.D.
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Real Estate Trends Are Positive, But...

11/13/2012

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Last night I wrote that positive trends in real estate, specifically reduced inventory and increased starts (see below), was a positive sign for the construction industry.  
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Well, I may have spoke a bit too soon.  In a conference call today, D.R. Horton CEO stated that "I don't see a lot of jobs being created."  This is bad because a rally in home building, and thus the infrastructure related to home building, are tied to low unemployment.  High unemployment is bad for home builders because it leads to higher mortgage delinquencies and foreclosures.  So the market for new homes may stall out until more jobs are created.

So that's the ugly side of today's manic news.  The good news is that the demand for single-family rental homes is surging, up 25% over last year in some cities and up in 22 of 30 markets tracked by CoreLogic (as reported this article in the WSJ).  This is natural in slow markets.  With unemployment high and credit for new home buyers tight, renting is a logical solution for many people.  However, here's what's good for the construction industry.  There is a lot of institutional money flowing into this market, which has long been dominated by mom-and-pop buyers that managed a few properties at a time.  If large investors have a lot money allocated to an asset class that has seen it's supply decrease by 11% since last year, either a) the price of rental properties will increase, b) more rental properties must be constructed (spurring new construction and the infrastructure to support it), c) or both, generally speaking.

So the housing market news is still mixed but trending good in my humble opinion.  Unfortunately, it's heavily dependent on reducing unemployment.
1 Comment
msbiddykitty link
10/23/2013 11:00:34 am

I stumbled on this from Google and wanted to say thanks for posting

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