Is the Housing Shortage Just a Mirage?
Thanks to the near-record-low interest rates, many Americans are ready to jump back into the housing market. Unfortunately, many are running into one obstacle—there aren’t enough homes for sale. That’s a good sign, though! After all, a leading indicator of economic growth is a healthy housing market, and a lack of housing should mean that builders can’t keep up with demand.
Part of the reason there is a lack of supply is that many people don’t want to sell. Many homeowners lost a lot of equity in 2006 when the housing market collapsed. Today, 21.5% of all residential homes in the U.S. are worth less than their mortgages. (Source: Panchuk, K.A., “CoreLogic: 10.4 million mortgages still in negative equity,” HousingWire.com, March 19, 2013, last accessed May 7, 2013.)
While housing prices have begun to rebound, they are still down 27.5% from their April 2006 peak. With that much room to grow just for homeowners to break even, you can see why many don’t want to unload their property, and why many first-time buyers are competing for a small number of homes. But homebuilders are stepping in to fill the void.
In 2013, U.S. homebuilders are expected to create one million homes, which will be the fastest pace at which homes were built since 2008. Apartment construction is leading the way, up almost 31% to an annual rate of 417,000, the fastest pace since January 2006. Single-family home building, which makes up nearly two-thirds of the market, fell almost five percent to an annual rate of 619,000. (Source: “New Residential Construction in March 2013,” United States Census Bureau web site, April 16, 2013, last accessed May 7, 2013.)
But much of that construction could be for naught. In late April, the U.S. Census Bureau noted that the number of housing units for sale in the first quarter of 2013 was 1.6 million, up from 1.49 million in the fourth quarter of 2012, but down from 1.65 million one year earlier. (Source: “Residential Vacancies and Homeownership in the First Quarter 2013,” United States Census Bureau web site, April 30, 2013, last accessed May 7, 2013.)
Perhaps most interesting is that the report observed that the number of housing units held off the market in the first quarter was 7.6 million, up from 7.29 million in the fourth quarter and down slightly from 7.63 million a year ago.
What does this mean? That banks are keeping more than seven million homes off the market, letting just enough homes trickle onto the market to make it look as if supply is tight.
While you can’t argue that there is a shortage of homes, you can certainly challenge where that shortage is coming from. For now, tightfisted banks are telling Americans who would like to purchase homes that they have to be content with renting.
That doesn’t mean investors can’t benefit from the current housing situation. In fact, there are two places investors can turn to if they want to add real estate holdings to their retirement portfolio.
Apartment Investment and Management Company (NYSE/AIV) is a self-managed real estate investment trust (REIT), with one of the largest portfolios of apartment properties in the U.S. The company manages over 520 properties, comprising more than 93,700 units targeting the largest multifamily markets in the U.S, namely Philadelphia, Chicago, and Washington, DC. The company’s share price is up 14% year-to-date and 18.4% year-over-year. It also provides an annual dividend of 3.2%.
Jacksonville, Florida-based Rayonier, Inc. (NYSE/RYN) owns and manages timberlands, grows and sells timber, and manufactures Southern pine lumber. The company is currently trading near $59.00 per share, has seen its share price climb 36.3% year-over-year, and is up more than 13.7% year-to-date. The company also provides an annual dividend of three percent.
Even though the housing shortage is an illusion and we have a long way to go before we can call it a “recovery,” there is still plenty of opportunity for investors wanting to capitalize on the housing sector. In fact, with the Federal Reserve keeping interest rates artificially low and banks keeping housing inventory artificially tight, the number of (potentially unnecessary) new construction starts could be robust for quite some time.