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Will Fewer Babies Born Affect the Housing Market?

November 25, 2011

in This Week in Real Estate | Tagged , , , , ,

Long Road to Recovery

Despite encouraging signs of a recovering market, economists and industry experts predict that the the dark cloud hovering over the housing market has yet to move away. “Real recovery remains far from reality,” according to a Washington Post story. So, don’t be misled by improving numbers.

housing market recovery

“There has been some improvement, but the numbers are still abysmal,” Patrick Newport, U.S. economist at IHS Global Insight told the Washington Post. “The market is doing really badly; it’s just doing better than it was early in the year.”

A report by consumer advocacy group Center for Responsible Lending found that the barrage of homes lost to foreclosures will continue for some time, which is a troubling sign. The report found that nearly 6.4 percent of homeowners who received loans between 2004 and 2008 defaulted on their payments and lost their homes. If that isn’t bad enough, another 3.6 million households face the risk of sharing their fate. Foreclosures drag down existing home prices, and discourage builders from unveiling new inventory in the market, creating one of the biggest roadblocks on the way to a market recovery. At a time when lenders are super cautious and consumers are anxious about the economy, the falling prices are not providing enough incentive for homeowners to buy. Thus the market remains unstimulated.

“Housing demands remain depressed with existing home sales back to 1998 levels,” David Stiff, a Fiserv chief economist, said in a statement to the Washington Post. “Even households with access to mortgage credit are hesitant to buy homes while job growth is weak and consumer confidence is low.”

The road ahead is not short, and it is besieged with speed bumps. Hopefully, we will get there with baby steps.

Low Births Mean Bad News for Housing Market

Last year, the number of babies born dropped to an estimated 4 million, the lowest in 11 years, according to data from the National Center for Health Statistics. The trend has been a result of unemployment, depleting savings and disposable income, plummeting home prices and overall consumer anxiety about the economy. People are scared to bring in babies to an uncertain world when they would rather do without the added expenditure. And the birth rate may not pick up until 2013, according to a Bloomberg story.

That’s not good news for the housing market. Fewer babies mean shrinking customers for the home buying market.  Couples without children would lack that incentive to invest in a house and may continue to rent longer.

“The potential impact of a more-sluggish birthrate is huge,” Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, told Bloomberg. “More households will likely choose to rent for longer periods of time, and there will be fewer trade-up buyers. I fear this is a trend that will likely persist.”

Rental Vacancy Rates to Hold Steady

While sale prices for single-family homes continue to decline, the vacancy rate in the multi-housing sector is expected to hold steady at 5.5 percent, according to an analysis by CBRE Econometric Advisors. In a  release, CBRE-EA said apartment vacancies will drop 5.2 percent in 2013. For investors looking at putting their money into the real estate market, apartment buildings may be a way to go. An uncertain economy has kept a lot of potential homebuyers stuck to rental homes. Many have been forced out of their existing homes because of delinquent mortgage payments.  Besides those factors, a slight bump in new jobs has helped keep the apartment segment vibrant, experts say.

“With gross revenues surpassing their pre-downturn levels in Q3 2011, the U.S. apartment market has entered an expansion phase,”  said Gleb Nechayev, Senior Managing Economist, CBRE-EA in a release. “Considering the strong pace of recovery in rent and occupancy, it is not surprising that new multi-housing construction activity is also beginning to gain some momentum.”

Nechayev expects new apartment building completions to surpass 200,000 units next year. While the new supply will still be well below what it has been historically, the improvement in vacancy will pause until the labor market becomes more robust, he said.

“The third quarter is traditionally the strongest, but even after adjusting for seasonal effects, the market is essentially back to normal now,” Nechayev said. “There is still a fairly wide variation in market conditions, however, with rents still flat or even down slightly in some areas and rising by almost 15 percent in others.”

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