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REAL Trending Episode 67: 2020 Housing Upside, What's Going on With Moving Frequency and How the 2021 Elections May Impact the Economy

Jan 21, 2020 10:29:25 AM

Steve Murray: From Real Trends, the trusted source for real estate industry news, this is REAL Trending episode 67. We're breaking down the trends and news of the week and showing how they impact brokers and agents. I'm Steve Murray, president of REAL Trends. Today we're discussing 2020 upside surprises for the housing market, Americans not moving as much and last, preparing for 2021.

Steve Murray: First, a quick message about an upcoming event.

Steve Murray: 2020 upside. In the housing market, the upsides are going to be found in two big areas. One, the reemergence of the first time home buyer and builders building to match more of that demand. In the fourth quarter of 2019, home builders on an annual basis saw a 20 to 25% improvement in housing starts and permits and sales. So we could be looking at 750 to 800,000 starts and sales in 2020 up from the low 600,000 figure where home builders had been trapped or stuck for the last four to six years. Very, very positive news.

Steve Murray: The makeup of those starts and sales still are predominantly in the upper and upper middle ranges, but indications are builders starts in many markets are focused on, to the best they can, entry-level housing and what we would call more affordable housing for first time home buyers. So we have one big upside which is we may have 100 to 150,000 more new homes available this year that have been available in the past. Second after the rise in rates in the last half of '18 and then the turnaround and the drop in rates through the middle of '19, we now appear to be heading into a period of very stable rates. 30 year mortgage rates are hovering between 3.7 and 3.8% with quite a bit of money, particularly from private sources, venture backed and hedge fund backed mortgage lending in the low threes available to buyers.

Steve Murray: Obviously there was quite a surge in refinancing in 2019 which boosted the fortunes of mortgage banking companies. It really helped a lot of residential brokerage companies who are in the mortgage business. It's not too late for people to consider if you are not in the mortgage business through companies like NewRez and Shelter joint ventures, or Motto Mortgage in mortgage brokerage and a number of other opportunities available to brokers to be in the mortgage business. It's going to be interesting to see just how far builders can take their building in 2020.

Steve Murray: Secondly, a number of indications from the Census Bureau indicate that Americans are not moving as much as they have in prior decades. Also, the Americans that are moving are tend to be moving from states like New York, Connecticut, New Jersey, Massachusetts, Illinois, and California, and moving to states like Texas and Florida, the Carolinas and Tennessee. Colorado, Utah, Arizona, and Idaho are also beneficiaries of people moving from the more expensive markets on the coasts to the sunbelt and to the Rocky Mountain region. But generally speaking, Americans are just not moving, particularly moving out of the county or metropolitan area in which they have lived for some period of time.

Steve Murray: In the past, we have noted, looking from 1980 through 2010, about 4.6% of all households in the country, both renter and owners would typically buy a home each year. Clearly this data indicates that that rate may slide. [inaudible 00:06:03] we're adding 1.3 to 1.4 million new households a year and with people not moving as much, we may see that housing turnover rate decline. It wouldn't take much for it to be noticeable. We also have hindrances to mobility from the lack of detached single family entry-level housing, which enables young families to move out of rental into housing and attached patio home, town home type housing, both for the first time home buyers and for the boomers deciding and desiring to downsize.

Steve Murray: Having just gone through a downsize personally here in the Castle Pines, Colorado area, I can state that it took 18 months to find some kind of patio home, town home in a managed community because yours truly doesn't really want to cut the yard and snow blow the driveway anymore. Took almost 18 months to find a home that fit the bill and the price. The good news is we were able to close on it quick and then surprisingly sold our home here in the area very quickly. Nonetheless, mobility seems to be decreasing, particularly when it's families in the working ages moving from one market to another for jobs.

Steve Murray: Lastly, preparing for 2021 yeah, that's what I'm saying. Preparing for 2021. We have some of the most consequential elections of our time economically, certainly economically. We have had 10 consecutive years of growth and employment. We have record low unemployment rates. We have near historic record low mortgage rates. All these economic factors, wages are rising over 3% per year for the average household and for high school grads it's actually higher than that. The last report we read indicated household incomes for high school graduates was up 3.7% through the first 11 months of 2019. It's all very positive.

Steve Murray: What people fail to recognize frequently is the robustness of business is not just tied to interest rates and unemployment, although they're very important, but it is also the regulatory environment in which all businesses, including all those, for those of us who are listening in today, it's the regulatory environment that matters every bit as much. One of the great unstated successes of the current administration is the rollback of hundreds of regulations that affect business. Things like the national labor relations attempt to completely reverse 50 years of regulations pertaining to joint employers. You can see the impact of regulatory actions in the state of California now with the whole sale challenge to independent contractors and how that's affecting dozens and dozens of industries and not in a positive way.

Steve Murray: There have been regulations pertaining to the attempt to have banks cut off funding to unpopular industries such as gun manufacturers, ammunition, payday lenders and others. It goes on and on. The key thing about the 2020 elections, therefore, is not just necessarily who controls the House or the Senate or even the White House, but overall how that mix ends up and what it means for the regulatory apparatus at the federal and state level, which can have a significant impact on the future prospects for business.

Steve Murray: Personally, this'll be the 40 something year where this editor has voted in a federal election. I can only remember one critical economic election in the past, and that was in 1980 when the country was coming out of the stagflation of the 70s and the question was could we break out and become a vibrant economy again? Well, no one could argue that the election of 2016, both the optimism about the business climate, lowering of rates, reduction of regulations have caused an explosion in employment and wage growth. The question becomes, will that continue after the 2020 elections?

Steve Murray: If I'm a residential brokerage company, in short, you plan for the best, but consider what could happen otherwise and it may mean that for 2020 leading brokers should preserve some financial resources above what they have planned in the past to be ready for what 2021 could show. Learn more about industry trends, marketing and technology strategies, as well as listen to past REAL Trending on Apple podcasts, Spotify, Google Play, and more. Visit www.REALTrends.com/blog/. This has been Steve Murray, until next time.

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