Despite recent fears that housing prices have become artificially inflated and are headed for a crash à la the stock market, experts predict that as population, household growth and homeownership continue to grow, so will the demand for homes. Ever-resilient housing, which defied trends in other industries to emerge as the nation’s economic backbone during the recent recession, appears headed for continued success in the coming decade.
It is likely that the housing market will continue to boom, possibly pushing the rate of homeownership to a lofty 72 percent nationwide by 2013, especially if mortgage interest rates stay at single-digit levels, according to a new report, America’s Housing Forecast: the Next Decade for Housing and Mortgage Finance, published by the Homeownership Alliance, an industry group.
“Household growth along with replacement requirements, second home demand and changes in vacancies will require average production of 1.85 million to 2.17 million new housing units per year,” said David Seiders, chief economist for the National Association of Home Builders.
Conventionally built single-family homes will account for about 70 percent of the housing supply produced in the next 10 years, the report said.
Multifamily units will account for a 20 percent share of the market; the remaining 10 percent will be mobile and manufactured homes.
A driving force behind the ongoing health of the housing industry will be strong growth in household formations, which are expected to range somewhere between 1.32 million and 1.63 million per year, Seiders said.
“The data tell us that housing is not going away as long as you have a strong economy and single-digit interest rates,” said David Lereah, chief economist for the National Association of Realtors.
The nation’s rate of homeownership, which already stands at more than 69 percent, will top 70 percent by the end of the next decade, perhaps rising as high as 72 percent, Lereah predicted.
What’s behind this trend?
One reason for the increase is that minority households are starting to catch up with their non-Hispanic white counterparts. At least 10 million additional households will achieve homeownership by 2013, according to the report, and roughly half of them will be minorities.
David Berson, chief economist for Fannie Mae, said that home prices probably wouldn’t advance at the 8 percent clip of recent years, but would follow trends in income growth. He expects home price appreciation to average 4 percent to 6 percent between 2004 and 2013.
Mortgage rates, of course, are a wildcard. Over the next decade, “At some points, mortgage rates will be lower and at other times higher than expected,” Berson said.
In late October, Freddie Mac reported that benchmark 30-year fixed rate mortgages averaged 5.74 percent, down slightly from 5.82 percent a week earlier. A year ago, 30-year fixed loans averaged 5.95 percent.
While seesawing interest rates could have some impact on household decisions to rent or to own, Berson said they were unlikely to undermine the basic demand for housing resulting from the nation’s strong population growth.
“America’s families will likely need 125 million mortgage loans for home purchase or refinance, totaling $27 trillion in home loan originations over the next 10 years,” said Frank Nothaft, chief economist for Freddie Mac.
“First-time buyers will remain a major component of the purchase market,” he added, buying about 24 million homes.
By the end of 2013, that should put outstanding mortgage debt at $17 trillion, more than double today’s $8 trillion, Nothaft said.
Chicago’s housing market saw a robust year in 2004, with 2,848 units sold during the first half of the year, compared to 1,774 during the same period the year before, according to housing analysts Appraisal Research Counselors.
“The American dream of homeownership remains alive and well,” said Paul Merski, chief economist for the Independent Community Bankers of America. “For current homeowners and individuals and families seeking to buy a home, the economic benefits of homeownership will continue to rise in the years ahead.”
For more information on the report, visit: www.homeownershipalliance.com.
Real estate columnist and media consultant Don DeBat has written about Chicago-area housing and mortgage markets since 1968. He is president of Don DeBat and Associates, www.dondebat.net.