By Morf Morford
Tacoma Daily Index
Few, if any aspects of the economy are as basic – or as influential – as housing.
Housing is the core of multiple streams of our economy from vendors, construction work and developers, plus, it’s home.
In the second half of 2020 the housing market only highlights that we are in the ultimate tale of two economies.
A record number of missed mortgage payments (highest since the 1970s) and evictions related to renters missing payments is one strand of the housing market.
Another is that many families, those with (relatively) stable incomes are taking this opportunity to buy, and move into, the home they have really wanted.
For many, especially those able to work from home, expanded home office space has been a major selling point. (Office space in central urban areas, in an act of real estate counter-balance, are being scaled back, if not abandoned entirely). Others, especially older, long established home owners, are downsizing.
Either way, that makes for some huge movements across the housing market. And the housing market pushes (almost) everything else.
You don’t have to be a real estate professional to know that the housing market has been hot the past year or two under (relatively) normal economic circumstances.
That seems like a century ago – when housing prices grew steadily and predictably. In mid-2020, few, if any aspects of our economy are steady – or predictable: housing least of all.
Here are a few recent relevant statistics; The Seattle Metro area is scheduled to complete around 8,300 units by the end of the year, which will mark the first time in 5 years when the number of annual apartment completions dropped below 10,000. Last year more than 11,500 new units entered the market.
How does Seattle, once the hottest market in the country, compare to other large metro areas? It places 9th among the top 20 U.S. metros ranked by the number of apartment deliveries, being overshadowed by Boston (8,709 units), D.C. Metro (8,827 units) and Los Angeles (9,125 units)
Housing, as we all know, takes years from planning to full occupation.
And once built, most housing is not terribly flexible.
A two-bedroom housing unit, for example, cannot easily be transformed into a three-bedroom unit.
Almost one third (28%) of Americans live alone. This is double the number of fifty years ago –https://ourworldindata.org/living-alone. But will that trend continue – or decline in the next few years?
This is a global trend – but it is one that impacts every neighborhood – and almost every building project – built, planned or abandoned.
There are massive (and small) investments in single-person studios – or even smaller living units.
But the universal real estate question must be asked; will anyone want those places in five years? Ten years? Even two years?
The housing market is a leading economic indicator and – unlike many, if not most, other industries, the housing market leaves a near permanent mark on our landscapes and neighborhoods.
Tacoma/Pierce County is fortunate in that we have few (if any) areas of extended look-alike housing blocks that you see in many major urban areas – and even a few suburban areas.
My objection to look-alike housing blocks is more than personal esthetics; housing is the ultimate investment in the future – actually it is more of a bet that whatever scale and style of housing will be desirable (meaning marketable) in the future.
Will home buyers a decade from now, or even one year from now, want the same features that designers and developers had in mind when they set out their plans?
In every sense we are seeing a great shuffle in the housing market, and the housing market, like few others, is yet another indicator of the great divide in our economy.
As with our political landscape, there is no middle ground. There are those investing, buying and building and those evicted renters or those missing mortgage payments. In other words, we have two major streams impacting housing.
You could make the argument that the housing market is expanding even as the bottom is falling out.
For those who can afford it, it is time to buy the housing we want instead of the housing we have.
And for the others, those on the verge of eviction and homelessness, a completely different set of choices present themselves.
The term “affordable housing” emerges now and then during times of economic shift and challenges.
But “affordable” has very different meanings when the larger economy is uncertain at best.
In fact I would argue that “affordable” has essentially no meaning when we have a situation, as we had in mid-2020, of twenty consecutive weeks of over a million unemployment claims.
Not just those individuals are affected. Can our neighborhoods afford the inevitable mass exodus of mortgage defaults and rental evictions?
The mortgage crisis of 2008 should have taught us that banks, neighborhoods, investors and even those relatively stable homeowners who lose equity in their homes all suffer and take years, if not longer to recover.
And housing has become, or perhaps always has been, the ultimate marker between the haves and have-nots.
Thanks to growing equity, a financial “conveyor” belt kicks in as homeowners gain equity and personal wealth while those not on the economic “conveyor” belt stood still, which in reality meant that those without real estate assets had even less as the equity tilted the balance even more.
The primary residence is the largest financial asset most of us in the middle class will ever have, but if we don’t have that, the decline can be massive – and almost certainly generational.
The American economy is about seventy percent consumer driven. A huge part of that is hard-wired into our homes; buying, refurbishing or even remodeling all drive our economy like no other economic sector.
As more and more of us shift into homes more closely tailored to our lifestyles, whether that is more sophisticated and dedicated work spaces or more “stay-cation” oriented enclaves.
You could describe 2020 as, among many other things, a year of the great reshuffling, almost like a massive game of musical chairs where some properties are pursued while others are abandoned, all at a rate inconceivable a single year ago.
The housing market is convulsing, mortgage rates are at historic lows, and we see yet again, that the housing market is not just real estate, it is how, and obviously where, we live.
Maybe it’s time to think about what a “healthy” real estate market should look like.
Most of us live (and buy) under the assumption that our real estate investments (for most of us, our primary residence) will appreciate in value.
That’s a tactful way of saying that real estate will cost more in the future – that each succeeding generation will pay more for the same property.
Most of us take that dynamic as reliable as gravity or the changing of the seasons.
But is it inevitable? Is it desirable? Is it even within our control?
Would the next generation, if they could, agree with such a set of assumptions?
Housing, as I mentioned, is the ultimate investment in the future. Oddly enough, it doesn’t really look like “the future” gets much out of the deal.
Maybe we should start looking at real estate as the ultimate investment in the future, for the literal benefit of those who follow us, where the generation of our children and grandchildren have at least the same opportunity to own their own homes as previous generations.
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From RENTCafé:
RENTCafé’s yearly apartment construction report
The ongoing pandemic has affected the already visible slowdown in apartment deliveries since the 2018 peak. Over 238k units are expected to hit the market by the end of the year, a 12% drop compared to 2019.
Following the national trend, construction in the Seattle Metro Area dropped significantly, by 29% compared to last year, bringing the supply of new apartments to a 5-year low.
Here are the highlights:
Seattle Metro is poised to deliver around 8,300 units by the end of the year, which will mark the first time in 5 years when the number of annual apartment completions drop below 10K. Last year more than 11,500 new units entered the market.
How does Seattle compare to other large metro areas? It places 9th among the top 20 U.S. metros ranked by the number of apartment deliveries, being overshadowed by Boston (8,709 units), D.C. Metro (8,827 units) and Los Angeles (9,125 units).
At a city level, Seattle delivered 1,205 new apartments in the first half of 2020. The number of completions is disappointing for one of the nation’s busiest cities when it comes to building. The Emerald City was outranked by many other cities of its size, such as Portland (1,753 units), Chicago (2,134 units) and Denver (2,434 units).
To see projections from other cities and metros, you can check our full report here: https://www.rentcafe.com/blog/rental-market/apartment-construction-2020/.
– RENTCafé
