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Investors Purchasing Distressed Homes Masking True Housing Recovery

Feb 26, 2014

The Demand Institute recently published a 96-page report detailing the importance of housing for the American people. Housing, by their definition, takes into consideration apartments, estates, everything in between. In their words “where we eat, sleep, watch TV, surf the Internet, do homework, pursue hobbies, and of course share time and space with those who are closest to us.” Perhaps the most liberal use of the term “housing” to date, however; that was their starting point for the report. Some of the more vital aspects of the report include: ►Double-digit increases in the price of U.S. homes in the past two years are not indicative of future trends. They were largely driven by investors buying up swaths of distressed homes via short sales to meet growing rental demand. ►The top 10 percent of communities hold 52 percent of housing wealth. ►Fifty percent of American communities are struggling to find their way forward after the Great Recession. ►Over the next five years, home prices will accordingly grow at a much slower rate. The Demand Institute forecasts existing single-family median home prices will grow at an average annual rate of 2.1 percent between 2015 and 2018 as supply and demand move into a sustained equilibrium. ►There will be significant variations among all 50 states and the largest 50 metropolitan areas in the next five years. Price rises will be more than three times greater in the strongest markets than in the weakest ones. There are opportunities for national and local policy makers to support and amplify success stories from the strongest and most vibrant communities, while simultaneously considering interventions to strengthen struggling communities. According to The Demand Institute, “For several years after the recession, the U.S. residential housing market lagged the recovery in the broader economy. Now, however, it too is in the recovery phase, judging by three key measures—home prices, existing home sales and new home construction.” Another highlight of the report indicates that the slow and steady rate of recovery will mask housing’s massive disparity in price. Some of the states that are projected to see recovery include New Mexico (33 percent), Mississippi (32 percent), Maine (31 percent), Illinois (31 percent), and New Hampshire (28 percent). The states that are expected to not see much recovery include Minnesota, Alaska, Virginia and Washington, D. C. New York is also projected to not see much recovery, considering the absurdity of home prices. The average home in New York costs just north $500,000, which, in all honesty, seems low. Median rent price in metropolitan New York runs close to $3,000 per month. That seems about right. The Demand Institute also highlights the negative aspects related to companies pulling out of metropolitan or rural regions. “In a negative cycle, companies choose to move parts or all of their business out of the community, eroding employment opportunities. With fewer jobs and less attractive compensation (the two typically go together, with downward pressure on compensation as labor demand decreases), tax dollars fall, reducing the level of investment in community infrastructure and public services,” reads the report. The report isn’t all doom-and-gloom study, but a forward-looking report trending towards the positive in the light of minor economic and housing recovery.
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Feb 26, 2014
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