I am at an interesting point in my parenting life because I am teaching my teenage children how to drive. One of my kids is particularly intimidated by all-way stop signs, preferring the orderliness of red lights to the free-for-all of a four-way stop. I tried to demystify the experience by saying, “If kids can learn to take turns on the playground, I’m confident you can figure out how to take your turn at a stop sign.” That parenting wisdom has not proved to be helpful to my teen, but perhaps home builders can take heart that it is finally their turn to enjoy some widespread housing demand.
The homeownership rate in the United States finally ended a 12-year period of decline in 2017. Apartment developers and home investors had been the key beneficiary of this trend, as the country saw a record increase in the number of renter households from 2006 to 2016. This was obviously a correction after the mid-2000s’ housing bubble, but the pendulum had swung too far in the direction of renters. Since 2016, the homeownership rate in the U.S. has risen from 63.7% to 65.1% in 2019, creating 3.6 million more home-owning households. During this same time, the number of renter households actually shrank.
Demographics support a continued recovery in homeownership, which suggests the currently strong housing market may not be a short-term fad driven solely by record-low mortgage rates and by the COVID-19 environment. Instead, the pool of potential home buyers is deep, and a sustainable run of demand could be on the horizon for home builders. The single-family housing market has been slowly improving since 2011, but not nearly with the same strength of recovery compared with previous expansions or apartment growth since the Great Recession. Furthermore, single-family recovery has been uneven, with markets in Texas, for instance, doing very well while the Mid-Atlantic markets of Washington, D.C., and Baltimore have remained relatively flat.
Looking ahead, we created a scenario where homeownership recovers to 1999 levels, which was before the boom-bust period of the 2000s. Combining this with projected household growth by the Joint Center for Housing Studies at Harvard, the U.S. would add 8.7 million more home-owning households if we got back to the 1999 homeownership rate within the forecast period (ending 2025).
Locally, developers permitted 100,000 multifamily units over the past nine years, an amazing run for apartments in the D.C. metro area. This compares with only 60,000 units permitted during the 10 years of the 1990s. Therefore, it’s possible there is a large pool of potential buyers, but the challenge may come in the form of supply limitations. There is an extreme shortage of resale homes in the Mid-Atlantic region, and land constraints (among other new-home supply issues) will make it difficult for home building to span the gap left by the overstretched resale market. This makes for a tricky balancing act as builders attempt to raise prices without squelching sales, but Zonda is optimistic about the next few years. Mid-Atlantic home builders have been standing by long enough; it is refreshing to finally have a turn for some fun on the swing set.
