Headlines – Week of March 27, 2011
April 4, 2011
Housing shortage on the horizon?
According to a new study published by Metrostudy and reported in an article by CNNMoney.com, a housing shortage is looming that will soon create a huge surge in demand for new homes and now is the time to buy.
In the 41 cities Metrostudy covers, 78,000 houses are either vacant and for sale, or under construction – that is less than a quarter of the new homes that fell in that category during the housing boom in 2006 and way below the level of a decade ago.
According to the article, if we had anything like normal levels of buying, those houses would sell in 2½ months which indicates an incredible shortage.
According to an executive at Metrostudy, the historic drop in new construction mixed with the decline in housing prices is laying the foundation for a dramatic recovery in residential real estate. The company expects that homeowners soon will start buying again, which will drive up prices in many markets later this year.
Two basic factors are laying the foundation for dramatic recovery in residential real estate. The first is the historic drop in new construction. The second is a steep decline in prices, on the order of 30% nationwide since 2006, and as much as 55% in the hardest-hit markets.
One of the major factors that will bring buyers back to the market is the affordability issue. A new study by Deutsche Bank measures affordability in two ways: first, the share of income Americans are paying to own a home. And second, the cost of owning vs. renting. On the first metric, Deutsche Bank finds that homeowners now pay just 9.8% of their income in after-tax mortgage, tax, and insurance payments. That’s down from 17.2% at the bubble’s peak in 2007, and by far the lowest number in the Deutsche Bank database, going back to 1999.
The second measure, the cost of owning compared with renting, should also inspire potential buyers. In 28 out of 54 major markets, it’s now cheaper to pay a mortgage and other major costs than to rent the same house. What’s most compelling is that in all of the distressed markets, owning now wins by a wide margin — a stunning reversal from four years ago.
It now costs 34% less than renting in Atlanta. In Miami the average rent is now $1,031 a month; vs. the $856 it costs to carry a ranch house or stucco cottage as an owner.
In another report, Deutsche Bank identified 10 cities with the most affordable homes:
|Rent as % of after tax mortgage payment||Median home price change 2006-2010|
|Tampa-St. Petersburg, FL||131.6%||-41.4%|
|Las Vegas, NV||125.1%||-56.5%|
|St. Louis, MO||123.0%||-11.7%|
Young and educated show preference for urban living
According to a recent article in USA Today, educated 20- and 30-somethings are flocking to live downtown in the USA’s largest cities, even urban centers that are losing population.
In more than two-thirds of the nation’s 51 largest cities, the young, college-educated population in the past decade grew twice as fast within three miles of the urban center as in the rest of the metropolitan area up an average 26 percent compared with 13 percent in other parts.
The article points to a new generation of Americans that are looking for different kinds of lifestyles – walkable, art, culture, entertainment.
In Cleveland, which lost 17 percent of its population, downtown added 1,300 college-educated people ages 25 to 34, up 49 percent.
In Detroit, three anchor institutions; Wayne State University, Henry Ford Health System, and the Detroit Medical Center recently launched “15 by 15,” a campaign to bring 15,000 young, educated people to the downtown area by 2015.
Among the lures are cash incentives: a $25,000 forgivable loan to buy (need to stay at least five years) downtown or $3,500 on a two-year lease.
Preference for urban living among young adults, especially the well-educated has increased sharply, data show:
• In 2000, young adults with a four-year degree were about 61 percent more likely to live in close-in urban neighborhoods than their less-educated counterparts. Now, they are about 94 percent more likely.
• In five metropolitan areas – Boston, Chicago, New York, San Francisco, Washington about two-thirds of young adults who live in the city center have at least a four-year college degree. Less than a third of the nation’s 25- to 34-year-olds do.
The following table indicates the gain from 2000 to 2009 in 25- to 34-year-olds who have a four-year degree or higher and live within 3 miles of a metro area’s central business district. The data is from the 2000 Census and 2005-2009 American Community Survey by Impresa for CEOs for Cities.
|Metro area||Gain||Percent change|
|Kansas City, Mo.-Kan.||1,300.3||50%|
|Salt Lake City||1,903.0||21%|
Posted by Scott R. Lodde