Reading market shifts: 3 datasets to watch for

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    There is a lot of noise right now about the health of the US real estate market. While 2021 saw one of the busiest housing markets since 2005, predictions for what comes next appear to be almost exclusively negative in the press.

    Mortgage rates are rising, home prices are still rising, and the shortage of new inventory continues. We are clearly on the verge of change, and although the short-term outlook appears challenging, the longer-term outlook is more optimistic.

    There are three main metrics everyone in the real estate industry should understand, but no one seems to be talking about them. When advising clients about the future of the market, it is important to take a more holistic view. The following metrics will help you better prepare to talk about the direction of the real estate market.

    Home Ownership Rates

    Homeownership rates are in line with historical averages of 65 percent dating back to 1965 and down from a peak of 69.2 percent in 2004.

    The specific data set tells us that home ownership rates are still low compared to the mid-2000s and earlier periods. Home ownership rates reached a low level in the mid-2010s as a result of the continuing effects of the 2008 economic crisis and the rise of urban life.

    It’s true that home prices and inventory shortages have put downward pressure on homeownership rates, but the key here is that the numbers have room to run. There appears to be a general perception that home ownership rates have exploded, meaning they are unsustainably high.

    In fact, it is helpful to see that current home ownership rates are slightly above the historical average of 65.3 percent and well below 69.2 percent.

    Single family housing offer

    The United States has built 4.3 million units of single-family housing since 2000, compared to new home configurations causing severe shortages. People are creating families faster than builders are creating new housing, causing a fundamental shortage of single-family housing across the country.

    Between 2015 and 2020, the average household formation rate was 1.5 million households per year, while the average single-family home completion rate was 806,000 homes per year. If the construction of new homes and home formations continues in this segment, the gap between these scales will never close.

    If the home completion rate doubled to an average rate of 1.6 million homes annually, it would still take more than 20 years to close the current gap. This can also be seen in the homeowner vacancy rate, which decreased from 2% in 2012 to 0.9% in 2021. In short, we will essentially be living in a demand-rich and supply-hungry market for the next 10 years.

    Mortgage Assets

    Mortgage facilities go to buyers with high credit scores, and these buyers can afford their mortgages.

    Unlike in 2008, today’s borrowers can afford their loans. More than 70 percent of mortgage dollars go to consumers with more than 760 credit scores, unlike before 2008, when that number was less than 25 percent.

    While mortgage rates are starting to rise, we are still near historic lows and well below historical averages. Lower leverage, more expensive mortgages and continued housing demand indicate a structurally different market than in 2008.

    These three major data sets will help you provide your customers with invaluable information that helps them navigate the noise and truly understand the long-term market outlook. Combine data-driven insights with your local expertise and your personal customer service approach, and you have a winning combination.

    David Walker is Chief Strategy Officer and founder of the agency. Follow him on LinkedIn.