Housing might be on the verge of a major pickup.
Deutsche Bank circulated a chartbook analysing prospects for the US housing market over the near future. While housing is still recovering from the burst of last decade’s housing bubble, there are some interesting and promising signs that things may soon be returning to normal.
America’s demographics and the aftermath of the Great Recession have led to a large reservoir of potential housing demand. There are a huge number of younger millennials who are about to hit the prime years for going out and starting households. In the next few years, the big spike of 20-25 year olds in the population chart below will reach their late 20s and early 30s, and they will be pretty likely to start renting or buying homes:
In the wake of the Great Recession, lots of those millennials have been stuck either staying at home, or moving back in with their parents. As economic conditions improve, they will become more likely to strike out on their own:
That process of venturing out and forming new households may have already begun. There has been a spike recently in the rate of household formation. This trend could lead to a rapid increase in the demand for housing in the near future:
So, there is a solid level of pent-up housing demand that could be ready to break out. Meanwhile, on the supply side, things are starting to return to normal. Both rental and homeowner vacancies have dropped back to near pre-crisis levels. Fewer vacancies implies a tightening of housing supply:
The massive wave of foreclosures that was one of the worst aspects of the housing bubble collapse has largely abated. Those foreclosures and other distressed sales during and after the crisis were a big part of the spike in the vacancy rate in the chart above, and a return to normalcy on this front could also mean a healthier housing market:
Meanwhile, consumers are feeling more optimistic and confident about the future of the housing market than they have in years. This chart shows a moderate upward trend in the number of people who are interested in buying a house in the near future:
Homebuilders are also showing a serious rise in confidence. The NAHB survey of homebuilders has been looking up recently, implying a strengthening housing market. Meanwhile, stocks related to housing have been on an upward trend over the last few years:
Housing prices have been slowly rising for the last couple years, although they remain below bubble-era excessive levels:
So, we have a combination of pent-up demand from millennials whose lives were interrupted by the Great Recession but who now may be ready to move out and start their own households, an end to the post-bubble spike in foreclosures and vacancies that could begin to constrain housing supply, and survey, stock market, and price trends that indicate a slow but steady return to normalcy in the housing market.
Put that combination together, and it’s possible we could see not only that return to normalcy, but a big acceleration in the housing market in the near future.