Five reasons why the housing market will never return to past glory

on May 16, 2013

The housing market is one of the biggest drivers in timber prices, and Packnet uses a lot of wood in its custom packaging and crating solutions, so we are always interested in housing market picture.

Housing in 2013 has seen solid growth, still one of the bright spots in today’s economy.   Prices have been steadily increasing; demand is growing at an 8% rate.   March had the highest number of housing starts in the last 4 years.   There has been some drop off in April, but most of it can be attributed to colder, wetter weather that has hampered new construction starts.

While many are encouraged and optimistic that housing can continue its rebound through 2013, in fact even hopeful that we return to the levels experienced back in 2005.  There are some conditions that may give reason to “pull back” on expectations.   Here are 5 reasons that the housing market recovery may lose steam in 2013, or at least never reach the levels of a decade ago:

  1. The current housing boom is investor led, houses are being purchased by investors that are finding good deals, generating some monthly rent income and are looking to sell down the road and large profits.   This group tends to be pretty fickle; as soon as there is a sniff that things may go south, they will be jumping out.
  2. New home construction prices are increasing as fast as or faster than the growth rate.   Wood products have skyrocketed in price resulting in higher construction costs.   At some point this could price a lot of would-be buyers out of the market.
  3. Mortgage money is tighter, banks are putting more restrictions on loans; it will be a long time before we see the easy money that we saw seven years ago.    The truth is a significant portion of the market that was buying houses a decade ago, is restricted from getting mortgages.
  4. Demographic changes will impact the housing market.  The baby boomers are moving into retirement age, a little over a decade ago many in this group were looking at buying their dream home.  Today, boomers are downsizing to townhomes, condominiums, and retirement villas.  If they do buy a home it will be smaller with more features.  The baby boomers constitute the largest age group so the “grey wave” will cause some major economic impact.
  5. Buying interests are changing.  Many in the demographics known as the millennia are not as excited about owning a home.  While years ago, most baby boomers dreamed of a 2-3 car garage and a ½ acre lot, many of the younger generations are viewing apartment or condo living as giving them more flexibility.  Buying a house was at one time viewed as a “rock solid” investment.   Today many are unsure that a house is a great investment.

Of course everything one of these points could be easily muted by other stronger forces that immerge in the market place.   Many home owners are still underwater with their mortgage, but if prices continue to increase, more buyers and sellers could be entering the market.

Lumber prices are still at historical high levels, we don’t expect to change for a while, even with a downturn in the housing market.