First-time homebuyers and new housing |

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First-time homebuyers and new housing

By Bradley Markano • Jul 10th, 2011 • Category: Charts, First-time homebuyers

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	2010	2009	2008
Estimated Pop. Aged 25-34	5,317,877	5,204,067	5,290,256
SFR Construction	25,502	25,454	164
Apt/Condo Construction	19,423	10,967	161

Chart last updated 7/10/11

Data courtesy of the Construction Industry Research Board (CIRB) and the US Census Bureau

All forecasts are made by first tuesday based on current data, influential factors and market trends.

This chart plots two factors from 1980-2020:

the age group of first time homebuyers, aged 25-34; and
the annual construction of SFR units and apartment units.

Each factor affects annual sales volume, and in turn pricing, of single family residences (SFRs) in California. Forecasted numbers for the 25-34 age group through the year 2020 were extrapolated by first tuesday based on current California population counts of those who will enter the 25-34 age group from year to year, adjusted for current rates of migration and immigration.

Noteworthy observations:

the numbers for the 25-34 age group last peaked in 1991 and 1992, consisting of the “Baby Boomers”;
the number of first time homebuyers will peak again in 2016-2017, and will be made up of “Generation X,” or the “Net-geners.” This generation is comprised of the children of the Baby Boomers, is smaller than the boomers, and will not have as great an impact on the housing market as their parents did in the late 1980s.

Housing starts in the 1980s for both SFRs and apartments outran demand by the end of the decade. As a result, housing starts crashed in 1990 and 1991 and foreclosures rose to levels consistent with the Baby Boomers’ demand for housing, leading to a correspondingly strong absorption rate of the excess supply of the many homes which remained unsold and unrented from the late 1980s.

In contrast to the 1989 peak of 162,651 SFR starts, the recent peak of 155,322 SFR starts in 2005 (5% lower than 1989) was supported by 9% fewer homebuyers in the 25-34 age group. Worse, the slow but steady expansion of the first time homebuyer age group will not begin pushing up home sales volume until 2012 or 2013 when the age group will begin to swell, a piglet-in-python routine compared to the massive effect the boomers had on consumption of new construction in the late 1980s and early 1990s.

Due to cheap and easily-obtained mortgage money, support for the excessive construction of new home sales in 2005 came from the short-term speculators (and quasi-speculative second home buyers). These speculators made up nearly half the buyers in 2005. They were not the users of the SFRs they purchased and pulled off the market. Their activity contributed artificially to the dramatic rise in prices, only to dump many of them back on the market during the real estate recession (directly or as REO properties) while levels of first time homebuyers remained low. As a result, construction starts from 2007-2011 will remain, at the lowest level since 1950.

Compounding the chaotic overbuilding during 2000-2007 was the federal government’s housing policy to drive homeownership from 64% in 2000 to 70% of the households in the United States by 2008. As a result, persons qualified only to be tenants and purchased homes they should not have owned, financed by mortgages they did not understand with terms that could not at inception be performed – the Zero Ability to Pay (ZAP) loans under which default was the only viable option.

These homes are just starting to get back onto the California market, with roughly 600,000 foreclosures completed from 2007-2010, and another 500,000 to come during 2010-2014. These California homes, now real estate owned (REO) by the lenders, must be placed back on the market and consumed by homebuyers (and many rental-income property investors) before a real estate recovery will be possible.

In spite of the high number of foreclosures, many of the forces fueling the recession in the housing market are likely to be neutralized in 2012 or 2013, at which point Generation X will have saved some money for a down payment going into 2014 and 2015. They are presently beginning to swell in numbers as first time homebuyers. Those increased numbers will trigger demand for an increase in new home starts (and apartments) which will continue through 2018.

All of this action in the decade of 2010 will be tempered by the return of mortgage lenders to real estate lending fundamentals (20% down and fixed-rate loans), somewhat independent fee appraisers, and cautious builders who will be wary of getting burned again so soon after 2007.

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Readers are encouraged to reproduce and/or distribute this article.

Copyright © 2012 by first tuesday Realty Publications, Inc. Readers are encouraged to reprint or distribute this information with credit given to the first tuesday Journal Online — P.O. Box 5707, Riverside, CA 92517.

Tagged as: foreclosure, income, mortgage, single family residence (SFR), tenant

Bradley Markano is a licensed real estate agent and handles first tuesday's Market Charts.
Email this author | All posts by Bradley Markano

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