I don’t usually blog about nationwide economic events because real estate is hyper-local, but this latest post from the Cromford Report was interesting enough for some deep consideration:
“January 31 – The local housing market might be pretty quiet right now, but we are seeing dramatic action in the numbers just released by the Census Bureau. Household formation shot through the roof during the fourth quarter. THIS IS BIG NEWS, despite there being little reporting of it in the media at large.
The annual household formation numbers for the fourth quarter were as follows:
- October 2014 = 1,435,000
- November 2014 = 1,618,000
- December 2014 = 2,001,000
These are colossal numbers, especially compared with 12 months ago:
- October 2013 = -110,000
- November 2013 = 103,000
- December 2013 = -205,000
The December number of just over 2 million is the highest we have seen since June 2005, almost 10 years ago and at the height of the housing bubble.
At the moment this household formation rate is translating into demand for rentals, but in every up cycle this is the first stage and it is usually followed by an upturn in demand for homes to buy. Household formation is usually a leading indicator of both upturns and downturns in the housing market, especially when examined as a 12-month rolling average.
While this chart is for the US, not specifically for AZ, here’s how this info could impact us here in Phoenix & Scottsdale:
Renters– Start asking yourself questions like: Is my rent increasing regularly and if so, how does that impact me financially? Am I often moving at the hand of my landlord(s)? Are my plans to stay in Maricopa for at least the next 3-5 years? If you answer “yes” to any of those, you probably want to talk to an accountant, me (REALTOR®) and a loan officer, in that order. There may be more sound financial options for you than you are aware of…
Buyers– the influx of residents moving into our state that has been a trend over the last several years continues. The number of renters coming out of the “penalty box” from “derogatory credit events” (short sales, foreclosures, bankruptcies) is increasing by the thousands and this year will mark a particularly large spike. These newly eligible borrowers are now your competition. Interest rates are still flirting with record low numbers- now nearing a low-point last seen in 2013. If the interest rate goes up .25-5%, how does this impact how much home you can buy? Increased competition will make it even harder to find a home at lower prices… maybe you might want to put some urgency into your search.
Landlords- rents have been good for a really long time… have we maybe seen the peak of this wave of low, low, low vacancies and rising rents? Start paying attention to what’s going on around you. See how long it takes other landlords to rent their units, that are similar to yours. Find out what those homes are renting for. Pay attention to your costs- maintenance, carrying, etc and know where your break-even points are so you make wise decisions.
Sellers- Are better times ahead? Will renters fresh out the “penalty box” exercise their right to have another piece of the “American Dream”? Will tenants who relocated years ago, finally decide to lay down roots and buy? Will all the people who previously had no interest in owning, for whatever reason, finally realize that it makes more financial sense for them individually to buy over rent? We’re already seeing improvements at certain price points. Stay tuned for more…
In the meantime, call me with any questions about any of this info or to zone in on the details more applicable to you!