The Shifting Nature of the U.S. Housing Market

Posted by Macie Melendez on July 17, 2012
The Shifting Nature of the U.S. Housing Market

The Demand Institute, a nonprofit organization that works to illuminate how consumer demand is evolving around the world, recently released its first major publication: The Shifting Nature of U.S. Housing Demand, which was done by Louise Keely, Bart van Ark, Gad Levanon, and Jeremy Burbank. Although the report explains the housing markets shifts in much more detail, the bottom line, according to the organization's analysis, is that the worst of the housing crash is over and a recovery has begun.

After six years of declining sales and falling prices that wiped $7 trillion from the value of housing assets, a turning point has been reached, says the Demand Institute.

The following are a few highlights from the report, which can be downloaded in full here.

  • This will be a two-stage recovery. Seasonally adjusted average house prices will increase by up to 1% in the second half of 2012, rising to an annual rate of increase of 2.5% by 2014. Between 2015 and 2017, they will rise by 3 to 3.5% a year on average.
  • The recovery will be led by demand from buyers for rental properties, rather than, as in previous cycles, demand from buyers acquiring properties for themselves. More than 50% of those planning to move in the next two years say they intend to rent.
  • Rental demand will help to clear the huge oversupply of existing homes for sale. In 2011, some 14% of all housing units were vacant, while almost 13% of mortgages were in foreclosure or delinquent—increases of 12 and 129% respectively over 2005 levels. It will take two to three years for this oversupply to be cleared, and at that point home ownership rates will rise and return to historical levels. More than 70% of those planning to move three to five years from now say they intend to purchase their home.
  • The housing market recovery will not be uniform across the country. Some states will see annual price gains of 5% or more. Others will not recover for many years. The deciding factors will include the level of foreclosed inventory and rates of unemployment.
  • The average size of the American home will shrink. Many baby boomers who delayed retirement for financial reasons during the recession will downsize. They will not be alone. The majority of Americans have seen little or no wage increase for several years, and many will scale back their housing aspirations. The size of an average new home is expected to continue to fall, reaching mid-1990s levels by 2015.
  • Despite the number of Americans who have been hurt financially by the housing crash, the desire to own a home remains strong. The report says they don't expect to see a long-term drop in ownership rates. Indeed, one survey has revealed that more than 80% of Americans recently thought buying a home remained the best long-term investment they could make.

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