The Stages of Housing Recovery

The worst is over for the housing market, says a report from the Demand Institute, a non-profit organization and collaboration between The Conference Board and Nielsen. The housing recovery will occur in stages, starting with growing demand from developers and investors for rental property. Young adults and immigrants will fill the rental units, and this will clear the oversupply of existing housing in two to three years. Once the oversupply is cleared, homeownership rates will rise and return to historical levels between 2015 and 2017.

I see several demographic problems with the forecast of rising homeownership. First, the student debt hangover will prevent many young adults from qualifying for a mortgage. Second, their wealth drained by helping grown children pay for college and living expenses, older generations won't have the money to help those children with down payments. Third, the desire of boomers to downsize (and the necessity to do so as they retire) will make housing a buyers market for years to come. 

Even if everything unfolds as the report predicts, the housing recovery will be uneven. Leading the recovery will be urban and semi-urban Resilient Walkable communities with local amenities, says the Demand Institute. Lagging the recovery will be Weighed Down areas such as the outer suburbs of major metropolitan areas. 

Source: Demand Institute, The Shifting Nature of U.S. Housing Demand