No
Housing Recovery Until 2020 In 5 Simple Charts
Submitted
by Tyler Durden on
04/19/2012
‘Every
day (for the past 3 years) we hear countless fairy tales why housing has
bottomed and will improve any minute now. Just consider the latest kneeslapper from that endlessly amusing Larry Yun of the NAR, uttered just today: "pent-up demand could burst forth from the improving
economy." Uh, right. Here's the truth - it won't and here is why, in 5 charts from Bank of
Epic
supply backlog...
From BofA: "The foreclosure inventory pipeline that must be
cleared in the next few years is very large. Our mortgage strategists forecast
that another 6.6 million homes will need to be liquidated over the next five
years."
Coupled
with a secular shift from plunging demand via habitation patterns, as more and
more simply opt to live with their parents...
"Live
at home children: Since the recession, the share of young adults that still
live with their parents has climbed. Of the 25-34 year age group, 14.2% live at
home compared to an average of 10.5% in the first half of the last decade.
Similarly, of the 18-24 year age cohort, 54.6% live at home, which is up from
the low of 50% early in the last decade, but is close to the longer-term
average. We should expect to see the 25-34 year olds
move out of their family homes once the economy heals. It may take more time
for the younger age cohort."
Means
more and more are forced to rent...
"We
forecast household formation to gradually turn higher over the next two years
with a notable pickup starting in 2014. This inflow of new
households will be supportive of the renovation market. Many of these
new households will initially move into the rental market due to slow wage
growth and tight credit conditions, as well as the typical attraction to
renting for the young adult age cohort."
Which
means home prices will slide ever more as the American Dream of home ownership
is forgotten, leading to even less wealth extraction via home equity loans...
"Typically,
the decision to renovate a home is a function of the value the homeowner sees
in the home and the ability to finance the improvements. Rising prices is
a signal to homeowners that the home is a good investment, so renovating would
only increase the potential return on investment. In addition, when home prices
are rising, homeowners can borrow against home equity to finance renovations.
The housing boom brought a notable increase in home equity lines of credit and
second liens, which were used to finance renovations. This has since collapsed
along with home prices."
Which means no hope for a long, long time.
...
Actually,
there is hope... in 2020.
"The
gain in renovations and multifamily building in the next two years should
provide some support before the eventual turn in single family construction begins. Assuming housing starts return
to the historical average of 1.5 million by 2016 and renovation spending
remains healthy, residential investment will once again become an important
part of the economy. We expect residential investment to reach 3.5% of GDP by
2016 and return to the historical average of 4% by 2020."