All signs point to a stronger housing market this year, but economists agreed at the AFT Live conference in early April in Las Vegas that there’s still a ways to go.
“It has not been a stellar recovery,” said David Crowe, chief economist of the Washington, D.C.-based National Association of Home Builders.
He estimated that GDP growth will be less than 2 percent, and with housing performing at three to four times the speed of the rest of the economy, it still makes up only less than 3 percent of the overall economy, although it should be twice as much.
“The forecast still shows some weakness,” he said, adding that much of it has to do with the federal government's sequester. “That will take a little wind out of our sail.”
The shining light is that household formations are on the rise, helping the market get back to some sort of normalcy. Still, job growth has been somewhat anemic, and the net absorption level has subsequently fallen.
“While the economy has been recovering, neither of those has been recovering in a very spectacular fashion,” said Ryan Severino, senior economist at New York City-based Reis, Inc.
Particularly, the market should be seeing a significantly stronger rent growth. But no matter how many jobs are on the market, the caliber of those being created is not providing much of the living wage needed to match up with higher rents.
“Landlords aren’t raising rents in a lot of these markets because they just can’t do it,” he said.
You can only push rents up so far; now, vacancy rates are hovering near 4 percent, pushing the rent down on some units that are losing prospective tenants to the single-family market.
“A lot of these folks are wondering why they’re still renting instead of owning,” Severino said. “People who’ve had to stomach [rent] increases for the last couple years are kind of getting tired of it.”
Despite this home preference, the move to purchase instead of renting won’t invade on the multifamily market’s turf. The single-family market doesn’t exist as a competitor today thanks to the changing demographics of those forming new households; Gen Y renters still have plenty of obstacles to face before moving into the single-family arena.
Although it’s dim to believe that this demographic will remain renters forever, it is worth noting that student loans and job flexibility, among other factors, will prolong the Gen Y renting life.
And for that reason, overbuilding isn’t in the immediate future for multifamily, the panelists said.