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Resource Real Estate Executive V.P. Kevin Finkel on the state of the housing market.
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While housing data has been a little spotty recently mortgage rates are so low right now that a war out of investors are being advised to jump in and buy -- all our next guest says not so fast gaining a better off renting joining us now is Kevin -- resource real estate executive vice president.
-- -- Hi thanks for having me today -- right so we have a lot of housing data coming out this week we have new home sales pending home sales construction spending.
Do you expect -- or are you even looking at all those little pieces of information.
Do you expect them to may be underlined the trends that yet housing market's getting better.
Or do you see kind of more of what we signed January some of those indicators not being solitude.
The home builder sentiment -- study jas veterans for instance -- The -- what -- what we do as we take a longer term view of what's going on we look for for trends that we think they're gonna stay for a longer period of time.
One of the transit there we clearly see when looking at housing data specifically the Shiller index is that.
Housing prices looks like -- hit some sort of level of stability.
Since really 20092010.
-- sort of gone up and down -- around a pretty stable number at that point.
We are however very concerned about the risks housing prices going forward.
And and we're really we do -- -- of really three reasons.
-- and we see continue to see very anemic job growth in the United States and if you don't have job growth.
It's very hard to envision how you're gonna have a real housing recovery if people are having trouble.
Getting jobs and you're not -- -- come up his -- moved the second reason that -- supply.
We see over two million housing units that are either.
Being foreclosed on her seat on the balance sheets of banks.
We see issues with houses are actively being foreclosed on.
And we see significant amount of people -- delinquent on their mortgage eventually all of those homes are gonna come -- the market.
So you ask yourself why are housing prices I -- stabilize the last couple years what is the one variable in the verbal seemed to be mortgage interest rates and if you look at mortgage rates as as David just said -- record lows -- That's and I believe because you have -- demand to continue have a lot of supply.
People are at great risk to own homes and I'm one of them if you see a move up in interest rates because the mortgage -- -- generally are.
-- -- -- -- generally I agree with your analysis is and -- -- certainly interest rates are gonna get any lower than they already are but.
Let's talk about supply -- two sides -- supply issue here is for example we have.
Erected -- record low number of home contractors out there are now we've seen.
That number cut in half from 2006 of course that was -- during the boom years but look at these numbers in 2012 we have literally half as many.
In fact less than half as many home contractors in the US than we did.
So there are -- lot fewer houses being built.
And that does diminishing supply quite a bit in on the other hand we will have a lot of suppressed demand out there a lot of people wanted to buy for a long time there waiting for the time to go and so the supply demand issue could lean towards the housing market could -- not.
Well.
-- it could but I think those builders are Smart and and one of the things that they are seen -- is the same thing that that most of us are real estate are seen.
-- we're seeing what is possibly a real she opt in preferences of where people want to live and to be focused on Generation -- this huge demographic group.
Who's born after 1982.
You see that they're living in their acting differently than previous generations of what is or that they need more mobility.
The average -- -- job is two years and so they've had about seven jobs by the time they're thirty.
-- doesn't match well with buying a home in -- in place.
Generation ago it did when you would get at a high school work that chopper factory for your career by homemade said it doesn't make -- for Generation Y.
There were also very much economically -- right now -- underemployed and unemployed are really high rates over 50% of them are under -- hour on played or.
Or unemployed.
They have lots of student loan debt that's on their balance -- -- it's gotten got doubled since 2005.
-- -- it makes it very hard for those young people to get a mortgage and lastly David I think the most important thing is these young people.
Have witnessed at their own -- -- facts of housing bubble and how risky idea is to buy a highly leveraged asset.
Like a house and they watched -- -- suffered through in this generation is just saying not so fast I am not sure we're gonna be homeowners.
Unlike prior prior generations -- and so I think homebuilders are holding back because they recognize that there -- some trends changing this is why you see multifamily rates at -- same time rental rates going up so strongly.
We're seeing a lot of people coming into the multifamily sector to rent a partnership as opposed up owning a home which is traditionally been what most people did in prior generations.
You mentioned the case Shiller home price index and if you look at the real rate of return on -- home over the past century.
It -- percent.
That's right the real rate now that include doubt that includes taxes and -- millions in insurance in the holding costs of owning a home.
So when you look at -- -- a home is he really an asset that every year gets less viable take your car it depreciate as it gets older.
As is that appliance has become -- -- again roof becomes old and so one would expect not to see a lot of growth in the value of home prices it was only very small period of time.
At the beginning of the two thousands -- people will expect home prices do.
Move up quickly over a long period time.
Prior decades -- just -- demonstrated that so.
Hope invested in -- home.
For -- financial standpoint has been a really terrible investment for most people over the years it can be a great emotional thing and and I -- -- home I love my.
But that that it generally -- a lousy investment I think it.
Likely the equilibrium for housing going forward will be revert back with force historical norm.
Which is about 0% now those people that are ranking can take that money that otherwise would be in a down payment.
I put -- the S&P 500 -- and 500.
Has return on a real rate of return about 5% and so this is -- generally from an economic standpoint.
Owning a home is not.
A very Smart investment that may be a great emotional decision it if it is usually -- -- -- it is usually decision is made from the heart not from -- had no question Kevin thank primary sources real estate.
Executive vice president which we should mention by the way full disclosure you manage.
A real estate portfolio that includes 24000 apartment units so you do have read -- you are talking your book have been here but it's very good points Kevin thank you very much appreciate company -- -- have reproductive absolutely.
