It’s no secret that the housing recovery stalled out in 2014. Building permits and closed sales took a
small step back from 2013 both in our region and nationally. It’s really no secret what is holding the
recovery back—stagnant income and the Millennial generation’s slow ascent into homeownership.
Inflation adjusted median household income peaked in 1999 at $56,895, hit another prerecession
peak of $56,436 in 2007, and now stands at $51,939 in 2013. The solutions to this problem are varied
and multi-faceted but let’s just assume that this isn’t going to fix itself overnight. The other part of the
equation is the much discussed Millennials. People aged 20-30 account for two thirds of all incremental
housing growth. Simply put—you can’t move up if someone isn’t going to buy your starter home.
There should be plenty of pent up demand in this area—recently as much as 14% of 20—34 year olds
were living with their parents (or grandparents) compared to a historical average of 11%. This alone
would add another 800,000 households which would release a lot of potential energy in the housing
market. There are also more 24 year olds than any other age group in the U.S. right now. This is an
age that will hopefully be entering the market in the near future. As homebuilders, it is increasingly
difficult to deliver a product that is affordable to the first time homebuyer. As a matter of fact, the
share of the market that is first time new construction buyers has been cut in half over the long term
average—that is a major change!! The main culprit for this is increasing regulation cost imposed by
cities, regional planning authorities, and new building code changes. Most forecasts we see are calling
for roughly a 15-17% increase in construction activity this year as household formation recovers. We
hope they are correct.
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