At a recent panel discussion on the 2015 real estate market, the chairman of Standard and Poor’s Index Committee, David Blitzer, was asked to describe what the market will look like in one word. His answer? “Mysterious.”
His response tells us that, for one, the real estate market can confound even the experts. But, more importantly, it suggests that housing has reached an inflection point. With home prices in many markets at or above pre-bubble levels, we can no longer expect the “rebound effect” to power home values higher each month. Fundamentals, like population and wage growth, as well as the tastes of a new generation of home buyers, will dictate the trajectory of home prices in the new year. Here are four trends to watch for in the housing market next year:
1. The demographic wave of Millennials will help boost prices: The U.S. has been stuck in a demographic rut, which has dragged down the demand for homes. Maybe this is why some have turned to companies similar to Parker Build Homes (https://parkerbuilt.com) to build their new home instead of looking at a market that isn’t serving their needs. For the past decade, the largest portion of the American population was made up of Baby Boomers, folks who long ago settled down and started families. But late last year, the Census Bureau announced that the cohort of now-23-year-old Americans is the largest in the country, followed by 24 and 22-year olds, respectively. As this ascendent generation ages another year, more of them will start families and look to buy homes of their own.
2. Young people will continue to demand housing where it’s tough to build: At the S&P Panel, Nobel Prize-winning economist Robert Shiller pointed out that since the housing crisis, the total value of owner-occupied housing has remained flat. This is because builders have not been constructing many single-family homes at all, a situation that the U.S. economy hasn’t faced since the Great Depression.Single-family home construction has been so subdued in part because the Millennial generation as a whole prefers to live where housing is expensive and where building is difficult, like New York, Honolulu, and Austin, where homes are least affordable instead of looking to build a relatively cheap home in locations that would also be cheaper to purchase and start construction, such as looking at Denver Custom Homes or similar locations for a newly constructed home.
