by Calculated Risk on 10/25/2022 02:25:00 PM
Today, in the Real Estate Newsletter: Lawler: Update on the Household “Conundrum”
The pandemic wreaked havoc on some of the government surveys designed to measure the number of and characteristics of US households (though there were measurement issues before the pandemic), making it difficult for analysts how much of the extraordinary strength in the housing market during 2021 and early 2022 was related to “demographics” as opposed to behavioral and preference changes. (Here is the November 2021 piece on this issue). Nevertheless, it may still be useful to see what these reports are showing.
What is striking about the estimated household gain is that it is significantly above – in fact, about double — what one would have projected if one had assumed that so-called “headship rates” in each age group (the number of householders in an age group divided by the total population of that age group) had remained the same over this period. Moreover, headship rate increases were concentrated in the 15-34-year-old categories.
If in fact over the 12-month period ending March of this year the number of households increased by almost two million, then household growth significantly outpaced housing production, as total housing completions plus manufactured housing shipments totaled only about 1.44 million.
In terms of household growth, there are several reasons to expect that household growth has slowed sharply since the beginning of this year …
If in fact this dynamic shift between household growth and housing production is taking place, then it, combined with (1) the unprecedented increase in housing prices over a 2-year period from mid-2020 to mid-2022, and (2) the unprecedented surge in mortgage rates this year, would suggest that a non-trivial decline in home prices from the middle of this year to at least the middle of next year would be a logical “base case.” This shift, combined with (1) the unprecedented increase in rents from late 2020 to the middle of this year and (2) the significant increase in rental units coming to market over the next year, suggest not only that rent growth should soon decelerate sharply (in fact, some indicators suggest that it already has), but that an actual decline in rents next year would be a reasonable base case.
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