Motley Fool Outlines Why Real Estate Will Bounce Back

Kitchen at Legacy Homes in Texas

Clayton Homes, Vanderbilt Mortgage and Finance, as well as MH home-building, lending and other housing suppliers parent company Berkshire Hathaway chairman Warren Buffett said recently that if it were practical, he’d buy up “millions” of single family homes. Housing, he said, could be a better asset to hold than stocks. A recent item from the Motley Fool outlines some of the why. In many areas a combination of collapsing prices and record-low interest rates has made housing more affordable than ever. Moreover the cost of renting is rising. The real driver of housing, however is household formation, and that’s determined in part by demographics. On one hand you have the baby boomers, who might rather dispose of the home they have than buy one. On the other hand you have their children. Since 1947, an average of 1.2 million new households have formed every year and we created some 1.5 housing units a year. The difference represents both an over-supply, and some old homes which were destroyed. However in 2009, less than 400,000 new households were formed, not because of a shortage of people, but because the recession lead to shared residences. The formation rate was back to 1.1 million in 2011, however. Better employment numbers mean those sharing space will begin forming new households. Moreover, a fairly young population and continued immigration mean the good numbers on household formation will continue. As the article states: ” Even if immigration falls to half the Census Bureau’s currently projected rate, household growth will still average about 1.25 million annually. This low-end estimate puts household growth in the next 10 years on par with the pace in 1995-2005, and should support average annual housing completions and manufactured home placements of well over 1.7 million units. The higher-end estimate would likely support production exceeding 1.9 million units per year on average over the coming decade.”

(Image Credit: Legacy Homes, Eric Miller)

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