Good news: The U.S. housing market will continue to thrive regardless of the economy.
The homebuilder market has been growing from an amended economy, supporting the housing market and rising confidence. The National Association of Home Builders (NAHB) discovered that builder confidence for new single-family homes has risen to its highest level since 2005, according to The Wall Street Journal.
The U.S. housing sector is a prime investment opportunity for three simple reasons:
- Solid job growth and consumer confidence: The U.S. economy has added 2.9 million private-sector jobs since 2014, with 736,000 new jobs in the 25- to 34-year-old range, a large portion of first-time buyers. Despite increased mortgages, more jobs and higher incomes are expected to increase consumer confidence and demand for homes.
- Rise of restrained demand: 1.5 million new households have been built this year, while over 30 percent of 18- to 34-year-olds are living at home. A lot of repressed demand is set to erupt, which will likely increase the next three years’ housing purchases.
- Readiness to loan and increased stream of credit: Banks are increasing their willingness to loan, households are becoming more poised and they’re now able to build-up. Foreclosed homeowners could also qualify for purchase within the next five years. As a result, the stream of credit is likely to increase and help sustain the U.S. housing market.
Bad news: The amount of living space in new U.S. homes will shrink.
The average size of U.S. homes produced dropped from the first quarter, suggesting entry-level homes are becoming builders' prime focus.
In an effort to accommodate current housing buyers, new houses will be 40 square feet smaller — equaling about the size of a walk-in closet. The NAHB estimates that first-time buyers, who statistically purchase entry-level homes, will account for 18 percent of new-home sales in 2015. This is an increase from 16 percent in 2014, but incomparable to the share of 25 percent to 27 percent from 2001 to 2005.
Entry-level buyers tend to lean toward smaller homes. In recent years, many younger people chose to rent homes with hopes of avoiding strict mortgage-qualification criteria, rising student debt, slow wage growth and preferences for city living, which has proven to be more pricey.
Builders have established divisions to supply the projected wave of first-time buyers. D.R. Horton is one of many home builder companies to notice these early signs of entry-level home growth in the past year. D.R. Horton started its Express starter homes division in 2014 and completed sales of 1,577 of starter homes around 2,000 square feet in the latest fiscal quarter.
The lack of entry-level buyers is a prime reason that, even though new-home construction has made strong gains, it's only 78 percent of its annual output from 2000 to 2014.
"Home construction accounted for only 3.1 percent of U.S. gross domestic product in this year's first quarter, short of its typical 5 percent," according to the Wall Street Journal.
What does this mean? Accommodation is being overlooked as builders, economists and home buyers of the past dominate the new-home market that's reliant on the upcoming generation.
