If you live in a house right now in suburbia look around and thank your lucky stars. If you live in an apartment take a look a round, I hope you like what you see because you might be there for a while. There are signs from the government, lending institutions, and municipalities that the status quo in buying a home is here to stay.
As we speak Congress is debating the standards that lenders need to play by. These risk retention standards are going to play a major role in how lenders decide to lend to prospective homeowners. The culture in home lending has had a paradigm shift since the early 2000's. Prospects now need a near flawless credit record, 20% down payment, and viable income ratios. In the "good ol days" with nearly nothing down and some paperwork, BAM here's your new home.
Large institutions and multifamily REITs definitely see the writing on the wall. With the impending demolition of Fannie and Freddie, multifamily has cornered a whole segment of the industry. College students transitioning to the work force, aspiring "YUPies" who haven't yet saved 20 %, and just about any other young people that don't have great credit. Multifamily REIT's across the country have buckled down on expenses and now are looking at serious growth as reflected in large stock price increases since 2008. My own employer's who for the sake of this blog we will call "Davidson" recently made major acquisitions in a high profile area looking to cash in. Furthermore, A developer from Urban Housing Group, just yesterday (April 7th 2011) walked into my office to discuss the state of the market. We were discussing the new Class A development they are breaking ground on in July.
The groundwork is laid. A much higher bar to clear to acquire a home loan, a serious demand for space in Multifamily with new college graduates every year adding to the demand. Demand price increases from a burgeoning clientele base will erode the saving power of renters. Gradual macroeconomic inflation increases will also slowly deteriorate the buying power of renters and other prospective buyers. I believe this all culminates in the creation of a new semi permanent renting class, who may not ever have the ability to have the white picket fence.
Who are the primary first time home buyers? A lot of the time they are young married couples. Over two thirds of first time home buyers were under the age of 35 and a house hold size on average of 2.7 people, according to the NAHB. The median income of first time home buyers is $ 67 K. In addition, as of the writing of the NAHB article in 2008, barely over a third of first time home buyers (FTB) had the "conventional" 20 % down payment. So for over 50 % of FTB's, they were either given some kind of leniency or possibly were part of a program that was willing to work with them. Now, we are looking at a future home market where that "assistance" or leniency will be rare or non-existent.
This may seem trivial, "a few more renters is okay". It won't be just few it will probably be a majority of the 18-34 age demographic. The "after shock " of creating this renter class will be a major blow to suburbia, if not the death knell. Since late 2006, we've all heard of entire unfinished subdivisions all across America. We've all heard of someone who's lost a home to foreclosure or has bought a foreclosure recently.
My outlook for the future in a macroeconomic perspective is rather gloomy. The growth of suburbia which boomed through the 80's, 90's and the last decade will come to a very slow crawl. Housing growth was a major economic driver of that time period. For a lot of municipalities, that growth meant blue collar jobs from construction, varying forms of corporate investment to meet the needs of new homeowners, and an increase of the tax base. With new home starts expected to remain at minimal levels, the overall health of the economy will be suspect. The birth and growth of the "renter class" will be a huge windfall for some, but for the rest us it is a reminder the US has seen better days.
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