If you’re a parent, you can relate to the kids in the back seat constantly asking, “Are we there yet?” Invariably, the answer is, “No, not yet.” This time-honored exchange is probably not too different from how people feel about the U.S. real estate market and its slow recovery.
One day a high-profile report says real estate continues languishing, and then another report shows that home sales are on the rise.
Where are we? Are we there yet? I feel that U.S. real estate markets are heading in the right direction but at an agonizing pace. Getting back to the car ride analogy, we in real estate are traveling at about 15 mph. At that speed, the scenery doesn’t change much and, since we’re all used to traveling faster, we’re growing impatient.
So let’s look down the road.
Indeed, the U.S. economy is searching for balance and I believe we’ll see modest growth in GDP and employment over the next two years.
Real estate is moving forward as well, and will help drive economic recovery. I base my sentiments on several factors, starting with growing investor activity. We all know that investors typically move first in a recovering market, followed by first-time and move-up buyers. Investors in many markets are snapping up properties at the lower end of the pricing spectrum to capture highly favorable pricing and rental returns. In the process they’re reducing inventory.
High-end homes are also moving in markets around the country as the wealthy clearly understand that upscale homes cannot be duplicated for their current asking prices.
Moreover, demographic forces will help breathe life into the mid-range market. Household formation through the “Great Recession” slowed significantly as younger adults in their 20s and even 30s moved back home, and families doubled up with other households. Currently, about 69 million adults, or 30% of U.S. households, reflect this temporary condition.
Immigration also will continue fueling household growth. With housing starts considerably below normal thresholds, a housing shortage could develop over time.
Let’s not forget that mortgage rates remain near all-time lows and, with lower home prices in many markets, affordability has rarely been higher. In fact, I haven’t witnessed a better home-buying opportunity in 40 years.
Today’s buyers will be well served by focusing on whether they can qualify for the surprisingly low mortgage payments and not on whether home prices will slip over the next three to six months. After all, a home is a long-term investment yielding a place to raise a family, live safely and build for the future.
Are we there yet? Not yet, but the U.S. real estate market is moving in the right direction.
Earl Lee is the president of Prudential Real Estate and Relocation Services.
For more information, visit www.prudential.com.