What's going on with the housing market? Is it up? Is it down? Taylor dives into the latest news from the week on the latest episode of The Construction Cut.
- American's aren't moving as much- what does this mean for the construction industry?
- The latest on the housing industry and why the market can't keep up with demand
- America is being overrun by bathrooms?
- And more!
Listen to the entire episode below on SoundCloud.
Full Episode Transcription
Welcome back to the second episode of the construction cut, I’m your host, Taylor. This week we’re seeing tons of information about the housing market. Is it up? Is it down? There is a lot of information floating around out there, so this week I did my best to decipher it all for you.
It’s Monday, January 27th, 2020. Let’s dive in:
Good news for remodelers- fewer US homeowners moved in 2019 than ever before. According to BuildFax, only 9.8% of Americans moved last year. Because of this, home maintenance spending increased by 9.47%. So what’s the culprit here? Well, for starters, Americans are staying in their homes longer than previous generations. According to Freddie Mac, seniors over the age of 88 have held back over 1.6 million houses from the market, leading to a lack of a) affordable housing and b) housing in general. Housing supply has been in decline for several years now, due to a couple of factors, things like a lack of new houses being built, a shortage of skilled labor workers in the construction industry, and more and more older Americans choosing to age in place, rather than move to an assisted living facility and put their home on the market. I think that Jonathan Kanarek over at Buildfax had a great grasp on the matter- he says “ The U.S. is facing a housing shortage, in part due to the slowdown in housing construction last year. This has been felt in both large metros and smaller cities across the country, “Now, even though the economy is showing strong growth and mortgage rates remain low, those who want to buy a new home are experiencing challenges with increased competition on a tight housing supply.”
So whats going on? Why is this happening? We know that the oldest members of our generation are hanging on to their homes, but what about the rest of us? Well, let’s look at the numbers. Baby boomers, all 75 million of them, have essentially put a wooden stick in the bicycle wheel that is the US housing market. The housing market relies on older folks putting their houses on the market as they get older, making way for first-time homebuyers. Well, the problem. Is that baby boomers are hanging to their homes and simply not letting go. Last year, Chase released a study that found that 76% of baby boomers own their own homes- couple that statistic with the fact that home values are rising faster than ever, and you’ve got a housing gridlock. Nearly 66% of those homeowners think that their home values will rise, and about 66% of homeowners plan to remodel their homes in some capacity in the next three years. This is huge information. According to a report by the New York Times, baby boomers control 70% of the disposable income in the US. Younger, would-be home-buyers, saddled with pernicious student loan debt and subject to stagnating wages, are simply not able to keep up with previous generations. But that’s a topic for another day, isn’t it...
So let’s get back to the housing market. Some news reports are saying everything is looking fantastic, others are saying the outlook is dismal. So, I crunched some numbers for you. Here is what we know:
The market is simply not keeping up with demand. According to realtor.com, the housing market is short by nearly 4 million homes. Mortgage rates are leveling off, and long-time renters are eager to enter the market. So why the shortfall?
The majority of the blame can be placed on the great recession of 2008- which as we know, was brought on by horrendous mortgage lending practices, specifically sub-prime loans. Home construction plummeted after millions defaulted on their mortgages and affluent investors went around the country, scooping up those empty homes and turning them into rentals, creating even less inventory. Homebuilders tended to focus on high-end, luxury homes, and as a result... Homes on the lower end of the market fell by the wayside. From what I can tell, there is a lot of opportunities for home builders to break into the entry-level home market. Something to think about in the future…
Let’s move to some good news. According to Builder Online, most homeowners are happy with their remodeling projects! 74% have a greater desire to be in their home, 65% say they experience increased enjoyment, and 77% feel a major sense of accomplishment”. According to John Smaby with the National Association of Realtors, remodeling, albeit time-consuming and costly, are “well worth the temporary inconveniences and the final products ultimately reward us, with feelings of accomplishment, satisfaction, and higher homes values.” The NAR came to these numbers by using something called a “joy score”, the more pleased homeowners were with their project, the higher the joy score. The remodeling projects with highest rate of client satisfaction? Kitchens, and closets.
Here’s an interesting one... Apparently America is being overrun by bathrooms. According to the Atlantic, there are more bathrooms in America than ever before. Why is this you ask? Well.. for starters... Houses in America are simply bigger than houses in other parts of the world. We love big houses, and it shows. Thanks to things like highways, zoning laws, and the invention of the suburbs, the average new home is nearly twice as big as a typical home found in Europe. And with added square footage, comes more bathrooms. Researchers point to the invention of fiberglass and cheap plastics as well, making the average bathroom a lot less costly than it was in the early 20th century. For those who take the remodeling route, bathroom remodeling is a great return on investment, nearly three times as cost-effective as a kitchen renovation. Cha-ching.
Thanks for keeping up on the housing market and remodeling news with me this week. Keeping tabs on this, I can tell you first hand that the information is changing all the time. I’m going to do my best to bring you the latest in a way that makes sense. If you have a question for me or want to chat more about the topics I’ve covered on today’s show, feel to reach to me on Instagram or send us a message on builder funnel.com. See you guys next Monday!