Wildly Out of Sync – New Builds versus New Households

by Tim Herriage

Wildly Out of Sync – New Builds versus New Households

by Tim Herriage

by Tim Herriage

This analysis release 12/19/16 shows that new builds look like they have exceeded household formation so all will be well?  Not so fast.
household-creationWhen you look at the cold hard numbers, it appears we have finally turned to the positive on creating housing.  What is neglected in these number are the realities of American geography and the need to report single numbers.  Then the aggregation of unlike units to get to a general housing creation number.
New Homes Are Not New Houses
This apparent 1.2 million new builds counts new apartment residence as the same as a new single-family residence. Yes there is a front door and it offers living space, but they do not attract the same type of resident. Apartments are rentals. That is 100% rentals, while around 63% of single-family residential homes are owned. Right off the top after you remove new rental homes from the number, you arrive at 845,00 as the expected 2016 rate of delivery for SFR new builds so we are hardly keeping abreast of household creation for 2016. This does not cover pent up demand as Millennials who have deferred life events such as marriage, children and a home purchase make the move into a single-family residence, yard and school district. Add the fact that every year about 420,000 (of 130 million) existing homes are demolished to make way for new construction from new communities, commercial or transportation expansion.  This is a negative number against the new house construction of 845,000 in 2016.  This adds to increasing rent pressure in major economic hubs. http://www.2020rei.com/how-can-rent-costs-continue-like-this/ 
Supply & Demand in The Disconnected Markets of America
Not to be political, but geographically America is not a monolithic nation or a united market. When this data of households and new builds is reported, it is rolled up as a national number. This unconsciously implies housing supply and housing demand matches up. Try telling that to someone looking for the ideal home in their specific market.
Job and families creation on the demand side are seldom synchronized with newly built homes supply. Even if  there is any market efficiency with builders chasing demand by geographic need, they are still restricted by land availability, financing, entitlement and build time before they can supply new houses.  This lag time creates price pressure and investment opportunity in the specific market where this family is seeking a new home.
Finding and filling these gaps with flips or rentals is where investor opportunity lies. For help in finding opportunities Texas markets, especially in the Dallas Fort Worth Metroplex go to www.InvestableRealty.com.
 
 

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