Posted by: Josh Lehner | June 18, 2013

Housing Outlook

Back in late May I was fortunate enough to part of the Southern Oregon Economic Summit in Medford which was a joint venture by the Home Builders Association of Jackson County and the Rogue Valley Association of Realtors. Given the severity of the economic (and housing) cycle in Southern Oregon in the past decade coupled with the recent improvements, it made for a great time to hold the event. That, plus the big draw of the summit was that they were able to get both Lawrence Yun, Chief Economist for the National Association of Realtors and David Crowe, Chief Economist for the National Association of Home Builders. Plus me. It was a very informative session and I wanted to share both some highlights from the two presentations and copies of their slides for those of you interested in browsing a great treasure trove of facts and figures.

National Association of Realtors: NAR – Lawrence Yun                                       National Association of Home Builders: NAHB – Davide Crowe

The housing recovery continues, even with the most recent hiccup in housing starts in April in the US, as prices are rising, shadow inventory is being worked down and the demand for housing is increasing. New residential investment has been growing about 5.5 times as fast as the overall economy over the past two years and even more so in recent quarters. Part of the recovery is due to the pickup in household formation. After falling considerably during the Great Recession (as people and families doubled up in homes to save money and young adults did not move away from home), the growth in new households has improved yet there remains quite a bit of room for further gains. As the economy continues to improve – more income and jobs – along with a growing population, the demand for housing will continue to strengthen as well.


However, the composition of the households is a bit different than we saw last last decade. The growth we have seen in households since the peak of the housing boom have been renter households, as the number of homeowner households holds steady or declines slightly. Given the housing bust – falling prices and large number of foreclosures-  it is not too surprising to see the new households being renters and not owners. However, moving forward demographics are actually in our favor as the echo boomers, or millenials, are about to reach their household formation years – broadly, 25 to 35 years old. Our office will have much more on Oregon households, demographics and demand fundamentals in the near future.


Another reason is that with the housing decline it has become a lot more difficult to qualify for a mortgage. The average credit score for approved borrowers increased 30-50 points from pre-recession levels as lenders tightened credit. Dr. Yun, of the Realtors, estimates that if lenders would loosen their standards back to a “normal” level (based on credit scores) then we would see 15-20% higher home sales in the U.S.


Even so, the underlying housing fundamentals have certainly turned the corner. Particularly given that home prices have generally fallen back in-line with incomes.


As sales increase, we are also working through the backlog of shadow inventory. Dr. Yun estimates that by 2015 only 5% of the home sales will be distressed properties, down from about 33% in 2010 and 2011. Furthermore, when examining the level of foreclosures across the U.S., Dr. Crowe, of the home builders, noted that half of all foreclosures are in just 5 states – Florida, California, New York, New Jersey, Illinois – which is partially due to the local housing boom and bust but also partially due to population as those 5 states account for about 31% of the country’s total population.


Realtors across the country are seeing a lot more foot traffic from buyers, but not much in terms of sellers. Calculated Risk says to watch housing inventory for continued signs of the housing recovery. As prices rise, and demand increases, there will be a supply side response. We know this and it will happen and to some extent it is happening already, just not in great numbers yet. The REALTOR Survey through early 2013 hasn’t shown an increase, but likely will in the coming year.


Part of this increase in sales is due to investment activity as individuals and institutional investors are looking to buy low and turn houses into rentals or to flip them. We are also seeing some growth in vacation homes, which should pickup given the stock market continues to grow strongly and higher income households have repaired their net worth. Should these sales pick up, it should also bode well for the regions of the state that have higher levels of seasonal housing, as highlighted previously.


All of this has helped contribute to low levels of both new and existing inventory on the market. In response, home builders have begun new construction about as quick as they can given credit availability for themselves or their companies and given the available land and lot supply. Today, single-family starts in the U.S. are 47% of normal, according to Dr. Crowe, of the home builders, and by the end of 2014 we will be back to about 71% of normal.


This housing rebound in new construction is widespread across the country today and is not isolated to certain regions. This was not the case two years ago, but now it is now based on the latest Improving Market Index compiled by the NAHB.


With that being said, the strength and duration of the housing recovery will vary somewhat by state. The home builders expect more weakness in the rust belt states and stronger levels of new construction in the energy producers. Oregon, according to the NAHB, will be at 76% of normal at the end of 2014. Checking our office’s forecast shows we expect Oregon to be just a hair lower than that at 73%, which would still be marginally better than the nation’s 71%.


In terms of what the new construction homes will actually look like, or what consumers want in a new home, the NAHB surveyed some 3,600+ home buyers and asked them lots of questions. (See Dr. Crowe’s slides for much more on the survey, questions and responses as he included about 17 slides on the topic.) What was interesting is not that the median home buyer wanted a bigger home than they already had, but that the new construction in 2012 was even larger than what people said they wanted. There has been considerable discussions in the blogosphere about the return of McMansions, based on the latest Census data. Yet as Dr. Crowe emphasized, this likely has to do with who could actually afford/qualify for a new construction home in 2012, not necessarily that the country is back to building like the bubble years. Those that could qualify in 2012 tended to be higher income households and housing size is correlated with income. With that being said, the median response was for a 2,226 square foot home, or about 17% larger than their current home.


Most home buyers wanted 3 or 4 bedrooms with 2 or 2.5 baths. 57% of couples with children wanted at least 4 bedrooms while only 25% of couples without children wanted that many. The demand for bathrooms is also a function of income as 26% of buyers with income of at least $150,000 wanted 3.5 baths or more, compared with just 5% of the $50,000 and below income folks citing the same.


The actual survey asked a lot of questions about what types of amenities and features they wanted in different rooms of the home. It also asked about tradeoffs in terms of making choices on what they could get for their money. But what may be somewhat surprising to some – maybe more so here in Oregon with our urban growth boundaries and young in-migrants – is that while we have seen this long-run trend in migration patterns to larger metropolitan areas, an increase in multi-family living particularly among the younger generations, there is still a willingness for today’s home buyers to live further away from shopping and entertainment in order to get a more affordable house.


Finally, in terms of the outlook, I will give Dr. Yun, of the Realtors, the last word.


Additional information:

After the presentations, the local NBC affiliate – KOBI 5 – interviewed both Dr. Yun and Dr. Crowe for their Five on 5 news segment.

Greg Stiles from the Medford Mail Tribune was at the summit and provides nice written summaries of each presentation: Dr. Yun , Dr. Crowe and yours truly.

Don’t forget to download the slides if you’re interested in browsing through.

National Association of Realtors: NAR – Lawrence Yun                                       National Association of Home Builders: NAHB – Davide Crowe


  1. josh- Thanks! Very informative. Mark

    Mark D. Barry, MAI Apartment Appraisal Specialist Mark D. Barry & Associates 1535 SW Clifton Street Second Floor Portland, OR 97201 Phone: 503-243-2925 Fax: 503-246-0714


    From: Oregon Office of Economic Analysis [] Sent: Tuesday, June 18, 2013 9:01 AM To: Mark Barry Subject: [New post] Housing Outlook

    Josh Lehner posted: “Back in late May I was fortunate enough to part of the Southern Oregon Economic Summit in Medford which was a joint venture by the Home Builders Association of Jackson County and the Rogue Valley Association of Realtors. Given the severity of the economic”

  2. There are an increasing number of homeowners who have realized that, even though their home is underwater and they have no intention of keeping it long-term, they can live in the home without making a payments for years on end. As long as the lender is inhibited from closing the actual foreclosure sale, the number of people living in homes for two and even three years, rent free, continues to build. The homes are a drag on the community, as these long-term foreclosures deflate nearby housing prices, instead of being resold and fixed up by the new homeowners. The homeowners can’t just abandon the property, because it is still legally in their name (see Zombie Titles ).

  3. […] Association of Home Builders’ Chief Economist David Crowe. I intentionally left it off the Summit summary post a few weeks back because I wanted to focus more on it. It is both elegant and simple, the best kind […]

  4. […] will inform you of recent population trends in Oregon. Much like the rest of the nation — as discussed by the National Association of Realtors’ Chief Economist — Oregon has seen the population living in their own homes level off while the population in […]

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