Housing Dimensions Blog
Will home price appreciation remain strong in the face of modest job growth and the recent uptick in mortgage rates?
Price appreciation is largely driven by the degree to which demand exceeds supply. While the best short-term measure of the housing demand/supply balance is months of supply of homes on the market, the best long-term measure is the ratio of household formations to new home construction. Since household formation data is highly unreliable, we use job growth as the best proxy because there are typically 1.2 jobs per household. Affordability, confidence, and demographic factors determine whether that household rents or buys. We have a great demand model that estimates that demand by price and rent range.
Consider the following:
June 5, 2013
What a difference a year makes. After being the poster child for housing distress during the downturn, California is now leading the national housing market recovery. Resale and new home inventories have plummeted to all-time lows. Prices are skyrocketing. Multiple offers and fast sales are more common than not in the state's more desirable neighborhoods. Although investors continue to play a big role in the recovery by absorbing distressed inventory, conventional buyers who have been on the sidelines are now returning in droves, looking to buy before prices rise even more. Below are some eye-catching housing statistics for the Sunshine State:
Apartment builders continue to feverishly build to capitalize on rising rental rates and favorable demographics, but construction is reaching danger levels in some markets.
Uniquely Competitive Environment
With homeownership costs at the lowest levels in decades and a surge in vacant single-family rentals, renters have plenty of options these days.
- The average monthly cost of homeownership is currently equal to or below the average rental rate in most markets.
- The move-out to purchase ratio (as reported by the apartment REITs) has risen to 14% from 11% in 2010.
The chart below compares the multifamily permit activity over the last 12 months to the 22-year average for the top 22 apartment markets.