The Housing Market

Historically, the new housing market has been a Leading Economic Indicator.  While new housing construction is itself perhaps 2% of the American economy, the ripple effects impact industries that make up approximately 30% of the American economy.

The next time you hear a talking head say that an increase or decrease in new housing construction will not impact the American economy…well, you just listened to an idiot.  Its impact is huge as described above.

New housing is ultimately driven by mortgage rates, demographics, and taxes.  Recognizing the negative impact that taxes, called cash proffers, have had on their counties, some have wisely eliminated cash proffers from their tax structure.  Residential construction will increase in those communities.

New housing construction includes both single family homes and apartments.  While the largest generation of Americans EVER, Generation Y (13 to 32 years old), has entered the housing market, they are disproportionately renting apartments, not buying homes.

Some indications are that Gen Y’s college debt is preventing them from qualifying for a mortgage to buy a home.  Another analysis suggested that with the historically low interest rates, Gen Y was skipping the “starter home” and buying the “move up” home to lock in the lowest possible 30-year mortgage payment.

Increasing interest rates for mortgages will have an impact on new housing construction.  But demographics and taxes will play an important role in the evolution of this important market in our economy.

The economic law known as “The Law of Substitution” says that if the consumer wants protein and the cost of beef has risen, the consumer will buy/substitute chicken.  Increased interest rates will impact the new housing market.

But recovery will continue.  The recovery of the new housing market is positive for various segments of the land market, including development land and timberland.

A really good tract of land is the best long-term investment possible.  Not every tract of land will benefit to the maximum from what is coming.  The really good tracts of land will benefit most.  Call us.  We would love to help your land investment look brilliant!