Tag Archives: pent up demand

Net New Renters 1.4 Million, Net New Home Buyers 0

Freddie Mac

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Freddie Mac released today its U.S. Economic and Housing Market Outlook for October showing that the rental market is doing well with many of households under 30 are opting for renting vs buying.  This is pushing the new households into “new renters” while adding no New Home Buyers.

If you have been reading this blog for a while, you will notice we have covered this in a bunch of posts. (pent up demand).   Although there is really nothing new, this is still a nice national perspective summary from the big picture.

“Much of the rental demand is from young and newly formed households who have decided to postpone homeownership in favor of renting during unsettled economic times. Indeed, the decline in the homeownership rate has been sharpest for those household heads under 30 years of age: While the U.S. homeownership rate has fallen about 1.5 percent over the past year (from 66.9 percent to 65.9 percent during the second quarter of 2011), owner rates have fallen by 4.4 percent (to 21.9 percent) for those under 25 years of age and by 7.0 percent (to 34.7 percent) for those aged 25 to 29 years,” said the Frank Nothaft, Freddie’s chief economist.

Outlook Highlights

  • Over the year ending mid-2011, the Census Bureau reported a net increase of 1.4 million households that moved into rental housing, a 4 percent rise in the number of tenant households in just one year.
  • The U.S. homeownership rate has fallen about 1.5 percent over the past year (from 66.9 percent to 65.9 percent during the second quarter of 2011) with owner rates falling by 4.4 percent (to 21.9 percent) for those under 25 years of age and by 7 percent (to 34.7 percent) for those aged 25 to 29 years.
  • Apartment rents, which had been flat to falling in many projects during the 2008-2009 recession, have begun to rise, albeit slowly.
  • New construction starts of apartments in buildings with at least 20 dwellings has picked up this year, and in the second quarter was the highest since the end of 2008.
  • Ten-year constant-maturity Treasury yields averaged 1.98 percent in September, the lowest monthly average since the Federal Reserve’s series began in 1953; these yields are a common benchmark for multifamily mortgage rates, and suggest that mortgage rates fell to new lows for multifamily lending in recent weeks.

Read the Full Freddie Mac October 2011 Economic Forecast

I believe if we can turn enough of the economic corner to allow these under 30 renters feel confident enough in their employment, they could enter the market and turn this housing market around in no time.  Sometimes I even wonder if we won’t be coming out of this down cycle straight into a housing boom as so many years of these first time homebuyers have been stuck into renting.  Time will tell.

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Americans Double Up to Make Do

Thought I would share an interesting short read.  They do a good job explaining households doubling up, what I refer to as “pent up demand”.   Makes me wonder if we are winding a spring tighter and tighter and when the economy starts moving will it trigger another bubble?  Just thinking out-loud there..

During the Depression, few American homes had an empty bedroom. The housing recession of the past four years has made empty spare rooms a luxury again by freezing families in place for years and limiting their housing choices.

via Americans Double Up to Make Do.

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Twin Cities Metro Area’s Pent Up Demand, Census Demographics projecting future housing demand.

After reading the National Association of Realtor’s article about the 15 to 19 age bracket and their housing needs, in my previous post.  It got me to think about our Region’s demographics and I was curious about some “ballpark” estimates on future housing demand in the Twin Cities area.

What kind of numbers are we talking about for the 15 to 19 age group and the 20 to 24 age group?  Here is the 2010 Census Chart on Age/Sex of the 7 County Twin Cities Region.

The 20 to 24 and the 25 to 29 age groups have been hit really hard by unemployment and have largely been left out of the housing market.  Let’s run some assumptions based on the 15 to 19 and 20 to 24 age groups.

Here are the numbers broken down for the age groups.


The 15 to 19 age group consists of 193,289 people in the 2010 Census for the Twin Cities Metro area.  We can’t assume that all of them will need housing; some will relocate out of State, some will get married, some will choose renting over owning and some will stay home with Mom and Dad.  So I am going to run with 50% of them will need housing,  it is just an arbitrary percentage I pulled out of thin air – maybe it is too high or too low but it is a nice round number.   So 50% of 193,280 of the 15 to 19 age group would be 96,644 housing units.  This will be over a period of let’s say 10 years for easy math and enough time for those age groups to enter the housing market, they would need  9,664 housing units per year.

If we look at the 20 to 24 age groups at 190,135 people, using the same 50% ratio we come up with 95,067.  Over the next 10 years would be 9,506 housing unit per year.

Looking at the 25 to 29 age group gets a little trickier to guess the numbers.  This is the age group that should begin to enter the housing market but with the economy many in this age group have been stuck.  If we were to run the same ratios we would come up with 110,383 housing units and over 10 years would be 11,038 per year.  I don’t really like those ratios on this age group, because some have entered the housing market by taking advantage of the First Time Homebuyer Tax Credit.  So for these purposes I am going to leave them out of this projection even though there is a fairly large number here that will enter the housing market.

So just looking at people age 15 to 24 we have a grand total of 191,712 housing units or 19,171 housing units a year.  Considering we have approx 24,000 housing units for sale, this could put a lot of pressure on the supply / demand ratio.   Remember, we have already accounted for the marriages and moving out the region in these figures. We haven’t taken into account the deaths and migration in this ballpark estimate, so it is not a figure I would use to do any serious forecasting with.

This estimate does however show us the “Pent Up Demand” that needs to be un-lodged , the only way to un-lodge this pent-up demand is to get these age groups Jobs.

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High School Years and Future Housing Demand – More on the Pent up Demand

High School Years and Future Housing Demand.

This is an interesting article from the National Association of Realtors showing the future demand for housing.  They looked at the 15 to 19 year olds and the demand for housing they will require as they move out of Mom and Dads house.

NAR is speculating there will be greater demand going forward for rentals (apartments, multifamily) to meet this age groups needs for housing.  I partially agree with their conclusion with a couple of exceptions:

The early 2000’s generation moved directly into homeownership bypassing the rental phase for the most part so not a lot of rental properties were constructed.  The other main reason, and more importantly why additional rental properties weren’t built is because of costs.

During the 1960’s and 1970’s apartment buildings could be constructed at relatively low costs.  If you go through some of these older apartment buildings you will notice a couple of things right away, the wood frame construction and the lack of wheelchair access.  You will also notice all the cooking smells, this gets into the HVAC system differences.  Many of these buildings were built with 2×4 construction and either “garden style” (similar to split entry in single family), and lacking elevators.

If you look around and think about any “newer” apartment buildings, what do they have in common?  1) they are in high rent areas and 2) they are very large  3) they “amenities” such as pools and fitness rooms.   These new rental units need to be in locations that can demand a lot of rent in order to make the economics work for the construction costs. There also needs to be a lot of units to make the economics work for adding elevators and other building code requirements that weren’t around 30+ years ago.   Unless the economic formula changes or building codes change,  I don’t foresee builders supplying the need for additional apartments for this demographic in the marketplace.  The days of building a 4 unit to 30 unit building are gone.   This will put additional demand on rental housing, duplexes, four-plexes and single family homes.

I could be wrong, there is a lot of apartment units going up around the Twin Cities now – in high rent areas.  The market may be overbuilding apartment units which could force rents lower to pull in this demographic.  But as they are targeted now, the rents are too high for this demographic group just starting out.


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Twin Cities Real Estate Market Pent up Demand

Giggly, smiling, surprised, 4 friends watching...

Image by Wonderlane via Flickr

We have all heard about the “pent up demand” for housing.  What exactly is that?  Quite simply, it is the younger generation that have not been able to enter the workforce because 14.9% unemployment rate and underemployment.  It is possible when we get through this “recession” or “recovery” we could see a shortage of housing relatively quickly.  It will likely start with the “starter home” price ranges, which then starts a domino effect up the price ranges.  The housing market is basically stuck until this age group gets steady employment.  To which I might say “Get a Job!”, like an old codger…   They are in a tough spot, as we all are.

Back to Jobs, Jobs, Jobs.

Read Full Article from Star Trib.

For most young adults, the only jobs market they know is the one shaped by the Great Recession. Unemployment for 20- to 24-year-olds is about 14.9 percent, still well above the national average of 9.1 percent. That doesn’t allow young workers to think much about the job they want, just the job they can get. And if they live on their own, it’s often with roommates.

The economic impact extends well beyond mom and dad’s wallet. With young adults struggling to live independently, household spending is diminished as fewer new households are being created. As a result, less need exists for furniture, appliances and a variety of services.

“Job formation helps determine household formation,” said Maury Harris, chief U.S. economist for UBS Securities.

From March 2009 to March 2010, the number of new households in the United States was the lowest on record. The plight of younger workers played a large part in the downturn of households, as families were forced to consolidate.


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