HOUSING NIRVANA

There are many blogs and news sources I follow on a daily basis for real estate news and commentary.  Some of these include Bubble Info, Inman News, The Big Picture, RIS Media, Housing Wire and DS News.

Bill McBride, author of respected finance and economics blog Calculated Risk, was one of the first major industry observers to predict mayhem back in 2006.  Today, McBride is calling this market “housing nirvana”, with low rates, affordable prices and demographics all pointing squarely at a major run in home prices over the next few years.

McBride argues that new home construction could essentially double from today’s levels and we would not come close to matching the existing and coming demand for new homes.  With less than 500,000 homes built in the entire country in 2012, new home construction is now at the same level as it was in 1991.  New home construction would have to triple to hit levels seen during the boom, which is simply unlikely to happen given the ongoing tightness of financing in both construction and residential lending.

Additionally, McBride points at the impact the Baby Boomers are about to have on the housing market as a key driver in future appreciation.  In the decade from 1994 – 2003, the number of 55 and older Americans no longer in the workforce increased by 4.3 million.  From 2004 – 2013, however, the number of older Americans no longer in the workforce increased by 8.1 million, an 88% jump in the number of Boomers hitting retirement age.

As these Boomers retire, they will want the same thing… smaller, ranch-style homes with less maintenance and less square footage.  Because builders simply cannot build “affordable” entry-level homes any more (due to increased material costs, labor costs, and land acquisition costs), the homes these booms vacate will be in exceptionally high demand in a thin-inventory market. 

McBride argues that unless material costs, labor costs and land acquisition costs drop significantly, higher prices are essentially a foregone conclusion going forward.