Friday, October 7, 2011

Where are the Buyers?

A curious, perplexing, and ongoing development in housing is the absolute dearth of buyers. The chattering class tries to figure out where they have gone, commentators expound on the merits of home buying (as if shills for the industry), and the never ending commercials on cheap interest (for qualified buyers) for home buyers rakes ones nerves at 6:30 AM. And interest rates are at 3.85%. But if there is one thing certain, those interested in buying a home, especially a new one, are hiding.

Everyone knows why you buy a house. Or do you? Think about why you live in the house you live in now. You bought it for which of the following reasons:

  • No more landlord
  • No more people walking on your ceiling
  • You are no longer single and can afford it
  • Your family has grown and four people in one bedroom just doesn’t work
  • You need the tax deduction (such as it is)
  • You want to have greater control over your lifestyle
  • No more parking costs
  • The American dream
  • You want a garden
  • You want your own castle
  • and
  • You know that this can be an positive investment and for a small down payment (assume 20%) you can leverage the that into a significant profit at some point in the future (fingers crossed). 

What we are going through is not new. There have been ups and downs in the world of housing for years and this too will pass, even with all the pain. There will be this  ongoing period of confusion and distrust, followed by tentative buying, then followed by a short period of normalization, whatever that is.

But there is one thing that I am sure of; there will be serious inflation in home prices within four years. Due to the lack of new homes serving the marketplace (and that market continues to grow at the rate of over one million buyers a year), we are running a serious deficit. The demand continues to grow and that demand is not being met, some estimates put the shortfall it at over 750,000 per year – in three years, with the current growing backlog, that’s 4.5 million buyers. Not unlike post war America in 1948.

Yes, the apartment market is growing now, good for the marketplace and builders, but these apartments are not where most of the homebuyers are. Most apartments are in urban and dense suburban markets. They are also intentionally being built to one and two bedroom standards – very few are family oriented, especially for three children families.

One of my favorite movies is Mr. Blandings Builds His Dream House. Released in 1948 (see above) Cary Grant (Mr. Jim Blandings) finds their New York post war apartment too small for his family of four. Myrna Loy (Mrs. Muriel Blandings) goes along with his dream of a home in the country. It gets out of hand, becomes too expensive, but in the end they are successful – everyone should watch it. (Click HERE on how to pick colors) My point is that we have been here before and will be here again.

There will be a time when builder stocks will be climbing like 1998 tech stocks. The push will into areas never faced with inflating prices, such as the newly discovered gas and oil rich areas in North Dakota and Pennsylvania. They will be where the jobs will be: Texas, the Southeast, major cities, and even (against what some pundits are calling– stick a fork in it - dead) California. Be patient, stay with your folks just a few years more, then get in early. It will be a bumpy ride.

Stay tuned . . . .

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