The Best Is Yet to Come
Robbins, John M., Mortgage Banking
The soothsayers are back, predicting the "sad" fate of the national housing market. Supposed industry experts have come out of the woodwork to report doom and gloom for the entire industry. According to recent reports, the foundation of our economy is in the process of crumbling due to rising interest rates and inflated home values.
Putting all the drama aside, let's look at the reality of the situation. I believe there is still incredible opportunity for our industry. Interest rates remain relatively low. While home prices are resetting due to larger inventories, underlying values remain strong. As the Cambridge, Massachusetts-based Harvard University's Joint Center for Housing Studies' report, The State of the Nation's Housing 2006, states, "With building levels still in check and the economy, expanding, large house-price declines appear unlikely for now."
This is simply a market recalibrating to normal levels after growing at a feverish pitch. In the long term, what we are experiencing is healthy and realistic. Let's first look at the demand for national housing and then explore some of the current challenges in fulfilling our future needs.
In responding to the pessimists, I would ask that they consider mortgage debt statistics as stated in The State of the Nation's Housing 2006's chapter entitled "Housing Markets." Even with modest economic development, outstanding mortgage debt is going to continue to grow as it has done over the last 20 years. According to this same study, it should increase from an estimated $8.5 trillion-$9 trillion to close to $20 trillion by 2020-2025.
Then there is the radical change in the demographics of potential homeowners. As the U.S. population hits the 300 million mark, it is easy to see that the faces of today's homeowners have changed, according to the "Demographic Drivers" section of The State of the Nation's Housing 2006. They are younger. They are single women. They are minorities. This study estimates that married couples without children will make up nearly half of the net growth in households in the next 10 years, while single people will be the fastest-growing type of household.
The estimate is that there will be nearly 30 million more potential homebuyers by the end of this decade. As an industry, the goal should be to figure out how we can find the means to provide significant mortgage capital to these groups.
Minorities represent about four out of 10 first-time home-buyers today. According to The State of the Nation's Housing 2006, that figure will be growing to 66.75 percent over the next 15 to 20 years. Essentially, the last decade has added about 15 million new immigrants with about a million and a half added each year, along with a higher birth-rate among these populations, as concluded by the U.S. Census Bureau.
The Census Bureau also reports that one in three people is either Hispanic, African American, Asian or indigenous Native American. For people of all races and ethnicities, homeowner-ship is the rite of passage into the middle class. That says there is opportunity awaiting our industry.
Additionally, other factors affecting demand for housing and mortgage capital are the natural population growth that occurs within the country, the continued appreciation of real estate (albeit slower), and the fact that people are living longer. Baby boomers also are boosting the market for senior housing and second homes, according to the 2006 Harvard Joint Center for Housing Studies' report. This research also concludes that, "With each generation exceeding the income and wealth of its predecessor, growth in expenditures on home building and remodeling should match, if not surpass, the current pace."
Now that we have looked at the amazing opportunities that lie ahead, what are some of the challenges we face as an industry?
In a presentation at the 2006 National Association of Housing and Redevelopment Officials (NAHRO) Conference in March 2006, entitled "Housing and the 2008 Election," Bruce Katz, vice president and director of metropolitan policy at the Brookings Institution, Washington D. …