The Urban Land Institute recently did a huge study on Housing and the Next Decade. It drew similar conclusions to a post I did earlier… decades of growing Suburbia are coming to an end. If you are in the Real Estate Market, or if you a consumer entering the market, this is an important trend to consider.
John McIllwin, the author of the study, acknowledges that home “values” have dropped significantly – and that the impact of negative equity in homes is unprecedented. By the end of 2010, the report suggests that almost 40% of all homes will have negative equity (be upside down on their mortgage) and this is significant since most other figures “floating out there” suggest a number closer to 25%.
The report emphasizes the need for next phase of Financial Reform, which must include Fannie and Freddie – and conflicts in Mortgage Servicing. Because people are more likely to walk away from a mortgage when they are underwater (even if they can afford the payment), the cycle simple perpetuates itself forcing home prices even lower. The study concludes that:
- Demographics will favor housing demand but at lower home ownership rates than at the peak or even currently. Rental markets will rejuvenate.
- Families with moderate or limited income will struggle as increases in household income will be “constrained” and house prices, despite their recent declines, will continue to be too expensive for many potential buyers. Such buyers will consider moving to distant suburbs but be faced with significantly higher commuting costs.
- New homes will reflect sustainable development objectives and over time, will become very energy efficient.
Here’s where I strongly agree with the report and think that communities, like Johnston County NC should pay attention... In order to “fix” the long term Gulf mess – we will have a higher Gasoline Tax. The Federal Tax is currently .09 cents. When the initial “Gulf Oil Slickonomic” reports came out, some economists and ecologist suggested that tax could go as high as .99 cents.
Those that attended the Conference last week in Louisiana by David Kotok of Cumberland Advisors, came away with a sense that the Gulf Oil Slick is not as bad ecologically (it’s a disaster – just not as bad a disaster) as initially feared. This is significant, if only to emphasize that the impending change in the Federal Gas Tax might not come in the next 6 months… but in order to dramatically cut our dependance on gas, balance our budget and fix the trade deficts – that tax will necessarily be increased.
Austin Jaffe, PhD at Penn State says:
The age of suburbanization and growing homeownership is over. The demographics of the next decade indicate that the market for urban living will continue to grow. There will be regional winners and losers as markets recover, and the strongest markets will be found in places that provide a vibrant 24/7 lifestyle. Many central cities will experience strong demand for housing. People who want an urban lifestyle but either do not want to live in a “big city” or cannot afford to will look to live in the many suburban town centers that have been emerging in metropolitan regions across the country.
Herein is the optimism: the changes which have been foisted upon households, financial institutions and the real estate industry since 2006 will result in new opportunities in the markets of the future. Metropolitan areas throughout the land will be altered by these changes in many fundamental ways.
Think the home buyers of the future are going to be able to pay $4 dollars a gallon for gas, or more to commute 40 minutes from Raleigh to Franklin County, or Clayton? I think it’s “less likely.” If I were in those communities, I would be trying to get my hands on Federal Grants (that apparently available if they create jobs) to hook up some sort of mass transit system … express lanes with people who carpool? Light Rail Connections to what is proposed between Raleigh and the RTP? What do those communities outside DC do?
Do I think everyone is going to hustle off to a condo in downtown Raleigh – no… but there’s a much larger group of Gen Y kids who will find that lifestyle appealing for many many reasons those of us who are “older” would never consider.
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