NewsWire: 2/17/21
- The U.S. single-family housing supply is at near-record lows. The shortage is being pushed by a mass exodus from cities, but also by lifestyle changes among today's senior citizens. (The Wall Street Journal)
- NH: As any housing industry specialist knows, the inventory of single-family homes has almost completely dried up. According to the National Association of Realtors, by the end of December, 2020, there were only 1.07M homes on the market. That’s a decline of -23% from December, 2019. There was also a record low 1.9-month supply of homes for sale. That's down from 3 months a year earlier. This shortage has caused existing home prices to skyrocket 12.9% YoY to $309,800 (per NAR).
- Meanwhile, there is a corresponding excess in multi-family housing. As of Q4 2020, the rental vacancy rate is at its highest since the pandemic began: 6.5% nationwide and 7.0% in cities. As interest in apartment living disappears, multi-family home starts fell in December to -40% YoY. That's while single-family home starts are skyrocketing (up +28% YoY in December).
- We have no idea how fast urban rents are falling: Leases take time to expire, and anecdotally many landlords are offering one, two, or three free months free rather than pull down the advertised number.
- So what's going on? We all know the big picture: Since the pandemic began, cities have lost much of their appeal. They have shed their amenities during the lockdowns and have grown more dangerous due to their high density. What's more, remote working for the top half of earners means employees no longer need to live near their workplace. And among the young and the bottom half, many more are moving in with each other.
- Bottom line: Many Americans are trying to move out of their smaller and mostly urban multi-family dwellings and into larger and mostly suburban or exurban or rural single-family homes. (See “More Americans Want to Head for the Hills.”)
- So far, so good--or so bad, if you own downtown real estate. Yet there's one piece of this story which has received insufficient coverage. That is the role of seniors. 27.2% of all household heads are age 65+ (up from 21.0% in 2010). Within this group, three dynamics are adding further momentum to the out-of-town housing shortage:
- Affluent seniors are no longer moving into cities. Before the pandemic, there was always a small stream of affluent retirees moving into urban centers. (See "Boomers Splurge on Luxe, Urban Apartment Rentals.") But that stream has completely stopped with the threat of Covid-19. If I have money and options, why buy the luxury suite if all the best night life is closed down and the risk of deadly infection is elevated?
- The frail elderly have been fleeing nursing homes. As we have written in the past, nursing homes have been prime Covid-19 breeding grounds. Many of these elders have chosen to move in with their adult children--accelerating a trend already in place before the pandemic. (See "Nursing Home Occupancy Plummets.") Yes, the vaccine rollout is putting an end to the infection risk. But the exodus that has already happened, for many families, puts a new premium on space. Many of those living in rentals will need to buy a home. And for many of those who already own a home, the option for downsizing is no longer on the table.
- A sudden wave of retiring Boomers is leaving the cities. We have previously reported that the pandemic has triggered a surge of retirements among Boomers, especially among those with lower incomes and less education. (See "Pandemic Forcing Boomers into Retirement.") This group, no longer needing to live near work, is moving away from urban areas to save money and to be closer to family. We're talking about an extra million households.
- Even as the threat from Covid-19 subsides, the force of this migration may remain strong for some time. Many people have already made up their minds about moving, but are reluctant to act so long as the health risks and economic uncertainty remain high. As the outlook clarifies, many of them will be loading the trucks. The fact that city life is reviving may not change their minds.
