What's next for US real estate?

Keeping an eye on the real estate market.

Keeping an eye on the real estate market.

 

As the second half of 2016 gets underway, many in the real estate industry are making predictions for how the economy will fare over the next six months. By most accounts, the first two quarters of the year have been something of a roller coaster. While the fundamentals driving the economy at large have been in good shape, other uncertainties cloud the future of the housing market. By understanding these forces and how they act on home values and consumer attitudes, it becomes easier for real estate professionals to plan ahead and get a good sense of the big picture.

Consumers demanding, producers scrambling

The recession of 2008 was a significant shock to the system for the American economy, not to mention the rest of the world. While modern financial protections put in place by banks and regulators contain much of a recession's damage and make its impact easier to predict, there's still plenty of unknowns at play. This helps explain why home builders have struggled to keep pace with U.S. consumers looking to buy homes recently.

"Demand for housing has outpaced new supply."

According to reports from the National Association of Home Builders, the demand for housing construction among buyers has recovered to levels similar to those seen in 2006, the height of the pre-recession real estate bubble. The market recovered relatively quickly, having hit its lowest mark in 2009 but returning to current levels around 2014. 

Despite a need for housing, construction hasn't quite kept pace. As Fortune reported in November, permits for housing construction had yet to recover enough to meet the need. The end of 2015 saw a high mark of just 759,000 starts, while that number was approaching 2 million at the beginning of 2006. Builders report difficulty in finding enough workers to build homes, after the construction industry suffered major layoffs in the recession's wake. Even six months into 2016, housing starts still lag behind.

Targeting markets

Another factor compounding the supply shortage is how many builders seem to have reacted to deflationary pressures. As Fortune reported, based on analysis of U.S. Census data from Deutsche Bank, the average square foot area of single-family homes built since 2008 has been increasing rapidly. At the end of the recession, average square footage was just over 2,400, while this figure rose to almost 2,700 by 2014. Fortune and other analysts have said that based on this trend, home builders are focusing more of their efforts on high income buyers, possibly leaving lower- and middle-class workers priced out of the market.

Is there any good news among all these mixed signals? Considering population growth trends, there may be a bright side. As Deutsche Bank analysts found, the millennial generation is now the fastest-growing population segment in the nation, and will mostly be comprised of 30 year olds by 2025. That means home builders and lenders will need to focus their attention on this demographic to see real progress, and that bodes well for Americans in general.