After six years of declining sales and falling home prices, a turning point has been reached for the housing industry, according to a report written by The Demand Institute in conjunction with The Conference Board and Nielsen.
In the report titled, “The Shifting Nature of U.S. Housing Demand,” the New York-based nonprofit organization that monitors consumer demand throughout the world, predicts that average home prices will increase by up to 1% in the second half of 2012. By 2014, home prices are expected to rise by approximately 2.5%, and from 2015 to 2017, values are projected to go up between 3% and 4%.
However, the three authors of the report do not expect this housing recovery to be the same throughout the country, as states that have a large surplus of foreclosed inventory, high unemployment and substantial price declines at this time, will not recover for many years.
“In these initial years, the prime driver of recovery won’t be new home construction, but rather demand for rental properties,” said Louise Keely, chief research officer at The Demand Institute and co-author of the report. “This is a remarkable change from previous recoveries and shows just how severe the Great Recession has been that such a wide swath of Americans had to delay, scale back, or put off entirely their dreams of homeownership.”
There were 39.5 million housing units rented out through the first quarter this year, Census Bureau data revealed, which is 35% of the overall market. Subsequently, rental vacancy rates dropped to 8.8% in Q1 2012, down from 9.7% the prior year and 10.1% in 2005.
Young people who were hit hard by the recession and immigrants will lead the demand for rental properties, the report said. Developers will build multifamily homes to rent to prospective tenants, while investors will buy foreclosed single-family properties for the same purpose.
During the initial phase of the recovery, the stock of vacant and foreclosed homes will hold home construction and house price growth back. But the pace of sales of these homes will begin to pick up this year as banks, real estate agents, lawyers and homeowners realize the market will not recover while over supplied and that lower prices have to be accepted.
The Demand Institute thinks it will take two to three years to clear the oversupply of foreclosed homes, but improved economic conditions in the future and lower unemployment will encourage more people to buy again.
Currently, the report said 11% of homeowners would like to sell their property. But the asset is not on the market because the homeowner does not believe they would receive the proper value for their house.
However, once the oversupply of existing properties clears and values rise, these same homeowners will “re-enter the market cautiously” and the likelihood of a flood of inventory that could reverse price increases will be avoided.
The report added that for every house sold during the recovery phases, other industries are going to benefit. For example, consumers will have to arrange for financing and also conduct renovations in order to maintain their property’s overall value.
“As the U.S. housing market strengthens, almost every consumer-facing industry will be impacted in the coming years,” said Mark Leiter, chairman of The Demand Institute. “Business and government leaders will benefit by fully understanding the nature of this recovery. In doing so they will be better able to anticipate how consumer demand will evolve, and to formulate critical business and policy decisions to lead their organizations.”
