Homebuilders target active markets
Homebuilders are keeping their cool and waiting patiently until younger Americans transition from renting to buying a home.
The good news is housing supply is down, creating some room for homebuilders to return when the market balance leans in their favor.
At the lowest level since January 1994, the inventory of homes for sale continues to drop to dangerous lows. Currently at 2.07 million units, housing inventory is at its sixth lowest level in 30 years, according to Capital Economics.
For those who can't buy a home right now, they are choosing to rent. In a recent survey by Opinion Research Corporation for Premier Property Management Group, 80% of single-family home renters polled said their property management is good or exceptional.
"Yes, the renters are happy with what they’re renting and would eventually like to buy, but the hurdle is that they can’t get a mortgage," said David Crowe, chief economist at the National Association of Home Builders.
Crowe added, "What’s happening right now is that the bulk of the renters, particularly those in single-family, are renting to achieve some of the characteristics of homeownership."
However, the same survey also revealed that half of renters anticipate becoming homeowners in the next five years, including 60% of single-family renters and 44% of apartment dwellers.
Crowe notes that preparation for this eventual rise in housing demand from younger age cohorts is not proceeding at the rate it probably needs to given the likely demand that is out there in the future.
Regardless, homebuilders are definitely buying land right now in anticipation of some improvement, whether it's at the speed needed or not, said Martha Ucko, housing and homebuilder analyst with CreditSights.
Ucko said homebuilders are more likely to build in places where access to the mortgage market is more readily available.
"The key for the homebuilders is that they’re able to adjust. While there is still high inventory in some areas, it’s a very split market, where some particular regions have low inventory and a lot of it is driven by how easy it is to get a mortgage," said Ucko.
According to Ucko, a large drive for homebuilders right now is that they are able to adjust and find the better performing markets and then target them.
"As long as they’re doing that, they’re appropriately buying up land right now and building and getting ready for even more. Some of them are still lagging though and sticking to their historical strategies and may have a harder time picking up on the demand that is there," said Ucko.