Chapter 5 Residential Market Analysis

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Chapter 5Residential Market Analysis
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Major Topics

• Demand drivers for home ownership
• Drivers of long and short term owner occupied
  housing market
• The decision to buy or rent
• The cost of home ownership
• How the government supports mortgage lending
• Simple models of multifamily housing analysis
• The dynamics of rental housing market
• Trends in residential housing

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Introduction

• Residential structures account for 24 of value
  of all assets owned in U.S.
• Average new housing is 25 bigger than what it
  was fifty years ago
• Home ownership rate has been rising steadily
• 64 in 1990 to 67 in 2007

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Long Term Demand for Housing

• Demand for housing is a function of
• Household growth rate
• General economic productivity
• Indicators of housing demand
• Population
• Household sizes

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Long Term Demand for Housing

• What influences Household Size?
• People are having fewer children
• People are living longer more of life spent
  without children at home
• Economic factors
• More working women
• Rising divorce rate

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Regional Demand for Housing

• Factors leading to absolute and
• relative growth in the number of
• households
• Size of existing population
• Job Growth (especially within export sector)
• Overall Quality of Life

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Short Term Demand for Housing

• Dominant factors for short term demand
• Mortgage interest rates
• Seasonality (climate, schools, holidays)

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The Buying vs. Renting Decision

• Economic Factors
• Capital constraints
• Expected tenure
• Income tax rate
• Mortgage rates Financing programs
• Investment aspects
• Budgeting risk

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The Buying vs. Renting Decision

• Psychological Factors
• Control over housing unit (design, appearance)
• Long term housing aspirations
• Psychic Income

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How Much Home can one Afford?

• Sources of capital Equity Debt
• Loan/Value ratio
• The before tax costs of owning a home include
• Principal
• Interest
• Taxes
• Insurance

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Federal Government Assistance

• Fannie Mae, Freddie Mac
• FHA
• GNMA
• VA

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Analysis of Housing Market Demand

• Simple Population and Household Trending
• Estimating demand based on employment growth
• 4 jobs ? 3 households

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Analysis of Housing Market Supply

• Developer Monitoring
• Supply large number of developers of varying
  sizes
• Easy to supply too much housing and the housing
  market tends to move in cycles

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Short Term Modeling of Demand Supply

• Developers simple model
• Keep building units as long as they sell or
  rent
• Short term indicators are
• Occupancy rates (conversely vacancy rates)
• Waiting lists
• Recent rental growth rates

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Housing Market Dynamics

• Supply and Demand are bought together by price
• Most D factors are local
• Supply is constrained/inelastic in short-run
• Immobility ? each market is local
• Many segmented markets

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Trends in Housing Market

• Mobile worker travels frequently and more wealth
  and higher income
• More and more households own second homes today
• Internet has put pressure on brokerage costs and
  this may result in increased buy and sell
  transactions
• Senior population has increased much faster and
  housing suiting their needs will have good demand
• A permanent renter market is also becoming more
  common
• Apartments are getting bigger and better

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END