The Future of Real Estate: Housing
Housing as we have known for the last 60 years is over for a generation. If you want to be a homeowner, you should buy as soon as possible because it will be substantially more difficult in the future. For investors, it may be the best time in history.
Since the passing of the GI Bill in 1944, the real estate industry is easily compared to the movie Poseidon Adventure. Like the ship in the movie, housing has been sailing on a luxury cruise. Occasionally it hit stormy weather, but generally, it has been one big party for everyone who could buy a ticket. Unfortunately, the unforeseen, unpredictable rogue wave turned our ship upside down.
The financial collapse in 2008 was the rogue wave for housing. Now, many pundits are quick to spotlight any positive news. They comment on the price, value, demand, and shadow inventory of housing, but none of them admits the hard truth. Unfortunately, no matter how much it bobs up and down, this ship will stay underwater. If you think it will right itself or help will arrive soon, you are still in the ball room hanging onto the chandelier.
In the near future, there will be a shelter crisis, not a housing crisis. The future will be one of decreasing homeownership and exceptional rental demand. This will be the net result of pending financial policies. These plans, which include increasing down payments to 20%, eliminating the 30 year mortgage, and removing federal guarantees from Freddie and Fannie, are similar to the standards in 1925 when only 40% of the population owned a home, multigenerational living was expected, and overcrowding was normal.
These proposed standards will significantly reduce the pool of buyers and increase the time it takes to complete a closing. The inevitable result will be both an increase in marketing time and a persistent, downward pressure on prices. This will certainly cause the foreclosure crisis to continue for years. Without stable or increasing prices, people will choose to rent for longer periods. They will have little incentive to save the needed down payments or improve their overall credit. Many will view home ownership as an albatross rather than an asset.
Last year, this year and for many more years, foreclosures will add over 1,500,000 families to the rental market. If you add this foreclosure number to the 1,250,000 new housing starts required to meet the natural annual growth in the US population, there is a need for over 2,750,000 rental units. There is nowhere near enough rental housing to meet this need. There will be fewer than 500,000 housing starts this year and 2011 could easily be under 400,000.
Yet, there will be great opportunities amid this realignment of personal and financial values. There will be enormous pockets of prosperity and one of the best will be the I-75, I-40, and I-81 corridor in East Tennessee. This is where investors will make the market.