The worst is over for the U.S. housing market

The shifting nature of housing demand
According to the white paper, The Shifting Nature of U.S. Housing Demand by the Demand Institute division of the U.S. Conference Board, after six years of declining sales and falling prices that wiped $7 trillion from the value of housing assets, a turning point has been reached. The Demand Institute sees average prices rising by up to 1 percent in the second half of 2012 (in seasonally adjusted terms), marking the start of a housing recovery.

As the market revives, so will consumer spending: the business of building, buying, and selling homes generates enormous expenditure in a wide range of industries, including those associated with the transaction, those that produce goods and services for the home itself, and those that provide goods and services in the neighborhood around the home.

This housing recovery will be different in nature from previous recoveries because it will be shaped by new market conditions and expectations.

This will be a two-stage recovery. Seasonally adjusted average
house prices will increase by up to 1 percent in the second half of
2012, rising to an annual rate of increase of 2.5 percent by 2014.
Between 2015 and 2017, they will rise by 3 to 3.5 percent a year
on average.

The recovery will be led by demand from buyers for rental
properties, rather than, as in previous cycles, demand from buyers
acquiring properties for themselves. More than 50 percent of those
planning to move in the next two years say they intend to rent.

Young people—who were particularly hard hit by the recession—
and immigrants will lead the demand for rental properties.
Developers and investors will fulfill it, developers by building
multifamily homes for rent (that is, buildings containing two or more
units, such as apartment blocks or townhouses), and investors by
buying foreclosed single-family properties for the same purpose.
Rental demand will help to clear the huge oversupply of existing
homes for sale. In 2011, some 14 percent of all housing units were
vacant, while almost 13 percent of mortgages were in foreclosure
or delinquent—increases of 12 and 129 percent respectively over
2005 levels. It will take two to three years for this oversupply to be cleared, and at that point home ownership rates will rise and returnto historical levels. More than 70 percent of those planning to move three to five years from now say they intend to purchase their home.

The housing market recovery will not be uniform across the
country. Some states will see annual price gains of 5 percent or
more. Others will not recover for many years. The deciding factors will include the level of foreclosed inventory and rates of unemployment.

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