By SAMANTHA HENRY, The Daily Transcript
It’s important to target real estate acquisitions and unload properties near where Gen Y and Gen X live because some day they’ll want to move out of their apartments and into single-family homes, said Nathan Moeder, principal at The London Group Realty Advisers.
Younger generations are gravitating toward areas that have a strong job base and a relatively affordable housing supply — such as Austin, Texas, and Raleigh-Durham, N.C. — both of which have research think tanks and good entertainment, Moeder said at the Single Family Housing Investment Forum in Coronado last week presented by Ficon Events.
“Those are areas that are going to continue to have good job growth,” said Moeder, a strategic consultant and real estate economist. “It’s going to be the job growth of the people 40 years and younger and Gen Y. Gen Y is mainly the younger people who are apartment renters. When it comes to single-family business, I would be following apartment construction too.”
At some point, Gen Y is going to get married, want to have a family, and move into a single-family home with a yard, Moeder said.
“I don’t think that’s going to go away,” Moeder said. “There’s been a lot of literature that it’s going to change, but consumer preferences don’t change, so I would be following apartment construction and seeing where those people are gravitating to. At some point they’re going to want to move out and buy some homes or even rent a home if they can’t afford it at that point either.”
In addition to tracking Gen X and Gen Y, Moeder said he advises his clients to look for supply-constrained markets — the governmental constraints. San Diego’s general plan through 2050 calls for 350,000 housing units, and 83 percent is planned to be multifamily, Moeder said.
“Only 17 percent will be single-family homes. Why? We’re out of land; we have no land. So look for land-constrained markets,” Moeder said.
He said he doesn’t believe 83 percent of people will be able to be forced into attached housing between now and 2050. This puts San Diego at a disadvantage to places like Raleigh-Durham and Austin, which offer the single-family home dream and a better quality of life to residents, he said.
The other aspect to that 83 percent is that there’s no land in San Diego that is entitled right now, Moeder said.
“San Diego needs to be turning out — to keep up with job growth — about 12,000 units per year,” Moeder said. “Right now, in the whole pipeline combined, we probably have 5,000 units. … After that, there’s nothing. And it takes three to five years to entitle a project in San Diego. So this is a market that is significantly supply-constrained. We’re not going to invent new housing anytime soon. If you have properties along the coast in San Diego, you’re sitting really pretty right now. There’s no need to sell because prices are going to go up much quicker on the coast than we’ll see inland.”
The biggest component to the real estate market is supply and demand, Moeder said. Building permits are basically nonexistent in all areas, with the exception of apartments. Apartment construction across the United States has been driven by the strong rental demand and the ability to obtain financing.
Single-family home permits have “dropped off completely,” Moeder said. California dropped down to 20,000 permits per year and San Diego County dropped to 2,000 units per year. “It’s just not enough,” he said. There are permitting issues associated with California, he said, creating a “backlog of demand” that isn’t being serviced.
“There’s pent-up demand in the market. There’s plenty of people who qualify for a home, but there’s just not a home for people to buy,” Moeder said.
There’s a “tale of two markets” in California — inland versus coastal, Moeder said. Coastal started to recover first, with fewer foreclosures and the desire to live on the coast never fading. The inland markets have been “sluggish” because of foreclosures and that’s where the cheapest homes have been for investors to pick up at good prices, Moeder said.
“There’s plenty of demand of people who want to buy homes. I think it’s the quality and type of buyer and the ability to deliver the new homes today,” Moeder said.
In terms of a recovery, Moeder said “we’re at a 4” due in large part to an unknown in job growth, and the nation won’t have a full recovery until there is job growth, he said.
Nationwide, 8.7 million jobs were lost in the last downturn and about 77 percent have been recovered, with 2.1 million that still need to be recovered.
“We have another recession ahead of us in job recovery. … We’re not quite out of the woods yet. Yet I think, from a policy perspective, nationally, I think we’ve exhausted and put in every dollar we can to help generate job growth,” Moeder said.
Investors bought the inventory and established a bottom of the market, Moeder said, which put upward pressure on prices to stabilize. One area to monitor is how the Fed will manipulate that market.
“We have to make sure those interest rates don’t increase too fast. I think we can sustain a housing recovery even if interest rates increase a little bit like they already have — like I said, there’s a lot of pent-up demand,” Moeder said.
There could be bigger issues if interest rates increase too quickly, but Moeder said he doesn’t think that will happen.
“I think there’s too much at stake, and the Fed has already acted to try to keep things low to not disturb anything more than they have to,” Moeder said.