Is the Dramatic Drop in House Sales the Hangover From the Crisis Or the “New Normal”?

The month of May was one of the worst months on record for new home sales. The news provided detailed articles about the impact of each new homes built on the economy and so on on employment and GDP. Nevertheless as bad as the news is, an argument exists that instead of a temporary and slowly “improving” condition, this could be “new normal”. While the housing market boomed through 2005 and 2006, few people recognized some of the developing trends and potential impacts of changes in the U.S. housing market place.

Some of the major factors to consider are:

Factor #1: The original baby boomers are rapidly becoming empty nesters and retirees. As a result their housing requirements are going to be smaller.

Factor #2: The baby boomers children are leaving home and so for a time at least the pressure for more homes remains strong, but those homes are going to be smaller.

Factor #3: The housing crisis has soured many on home ownership as wealth asset. Additionally, 50% of new households for the decade will be minority owned. Combine this with higher credit requirements and higher down payment requirements and why are we surprised the new home construction is down. Could this be permanent? I believe there is a strong argument that it is the “new normal”.

Factor #4: The huge number of McMansions constructed during the boom are not supportable. Demand does not and household size is falling because of the babyboomer trend.

Factor #5: Family birthrates are at less than replacement rate. Combine this with dramatically falling birthrates in Central America and Mexico and the influx of immigrants is weakening and is expected to slow to a trickle by late in the decade.

Factor #6: United States population will continue to grow toward a peak at mid century of over 400,000,000.

The combination of these factors is confusing to analyze and reach conclusions about, but some points do emerge that can be considered. Likely conclusions falling out of these factors include:

• The total number of households is climbing rapidly and will continue to do so for the next 10 years.
• The new households are going to be smaller.
• There are no trends that should support larger homes.
• Many large homes may end up being restructured, rezoned, or otherwise adjusted to support more residents.
• Home ownership has taken a severe and permanent hit as a favored investment.

Investors and managers need to keep a sharp eye on these issues as they adjust their business expectations and goals.

Blake Ratcliff (US Naval Academy Graduate & Marine Officer, Serial startup entrepreneur, COO/CEO, multifamily / residential investment founder, and property manager).

Blake’s crafted 100+ business plans, prepared and delivered 1000+ investor presentations, and is an expert financial modeler. A deeply experienced real estate business person and startup business expert, Blake hones your Business plans, reports, and presentations.

Visit http://internationalresidentialrealestateinvestorsassociation.org/real-estate-project-services-due-diligence-reports-business-plans