I talk to a lot of people. It’s just the nature of being in real estate; people want to hear what is happening in the housing market and as a Realtor, I find new clients by sharing my information and listening to their stories. When I hear someone is in construction, I am very keen to hear how things are going. “Up and Down” one guy said to me yesterday, he builds custom cabinets. Mark Brodsky, a good friend of mine, reps a high end cabinet drawer company here in L.A. He tells me he just landed a large order for a custom home. “It’s picking up” he says. This tells me the high end construction may be on the rise. Another friend, Larry Jassenoff is a project manager for a high end Malibu construction company. He states they are starting to line up jobs. He’s feeling better about things. My carpet installer, Todd Walden says it’s still slow in new homes, but he’s seeing a slight pickup in remodeling/carpeting jobs.
I blogged last week that tight inventory is going to lead to new construction and that is going to awaken the sleeping giant of our economy: home building. Yesterday a report came out highlighting the decline in home ownership to the lowest level since the early 1990’s. For many like my friend and Cal Lutheran University economist Dan Hamilton, lower home ownership rates are the key to a stabilization in the housing market. Dan hypothecated and his economic projection models suggest that no stabilization in housing can occur until home ownership levels dip to the 64-65% range. We just hit 65.4%. Something interesting to me is that many of the homeowners that lost their homes over the past several years were regular home owners who, for a variety of financial reasons, got caught in the downward spiral of the economy. They lost their homes but they are not necessarily traditional renters. By renters, I mean folks who really should never or will never own a home, and certainly not again, if they lost one already. No, many “homeowners” lost their homes and they will be out there to buy as soon as they are able. In fact, many are just starting to become eligible after short selling a few years ago. Something most people don’t know is that under FHA guidelines, a person who short sold can purchase again within 3 years of their short sale, and do so with as little as 3.5% down.
What’s it all mean?
What it means I believe is this: we are poised to see an explosion in new construction, mostly in the form of apartment buildings, multi-use retail and residential concepts as well as work-live lofts etc. People will be moving into town not out of, to the suburbs – these people I predict, will be young renters ready to step into home ownership but on their terms, that is, close in. More people are going to buy in the next two years than we have seen in the past 5, as more and more of previously distressed sellers are eligible to reenter the market place, and as more of us feel the worst is over in housing. This in turn means continued low inventory and ultimately low inventory in the face of higher demand leads to rising home prices. Rising prices also means fewer distressed sales and the reemergence of the move up buyer; the one home owner category most devastated by the decline in values. As equity increases, folks will finally be able to sell and parlay that equity into a large home. Are there still pitfalls that can derail this train? You bet. The mortgage market remains almost entirely dependent on the government via Fannie and Freddie and the Federal Housing Administration. There is still almost no marketplace for the sale of home mortgages outside of the government. Hopefully as home prices stabilize across the country and begin the slow march higher, investment firms will begin feeling it is safe to buy mortgage backed securities again. As rates rise, which virtually everyone agrees is inevitable, the lure of higher returns should also help spur investor participation along.
Yes it’s spring, and in real estate spring equals optimism. But this spring is different from those of the recent past; it’s better. Just ask someone what they think of the economy and they’ll tell you, it’s getting better a little at a time, all you have to do is ask and listen.