DC Dispatch: Changing Real Estate Realities, Redeemers

Three leading real estate analysts, each representing a powerful industry organization, offered their insight on changing realities in real estate and the channels where they see signs of redemption at the National Association of Real Estate Editors 43rd annual real estate journalism conference in Washington DC earlier this week.

Doug Bibby, president of the national Multi-Housing Council, set the table with a reminder that the United States is the only major industrialized country that is growing. That's good news for real estate because it should mean growing demand, but Bibby quickly pointed out that the demographics are quickly shifting and the real estate market will need to adjust to these changes. He said 85 percent of the growth is in non-traditional households -- those not made up of a married couple with children -- and that there will be a ballooning elderly population in need of housing, with more 80-year olds than 8-year olds in the year 2015.

All that translates into demands for different types of housing.

"It's not going to be the standard white picket fence isolated in the suburbs," Bibby said. "There's going to be a lot more choices."

The changing real estate needs and wants of the consumer may also mean the ratio of homeowners to renters swings back more heavily in favor of renters, but National Association of Realtors Economist Lawrence Yun said he's OK with wherever that ratio ends up.

"That's for society to determine," he said, noting that widely different ratios seem to be working across the world. For instance, he said the homeownership rate is just 40 percent in Germany but a whopping 75 percent in Spain. "Let the consumers decide what the homeownership rate should be."

National Association of Home Builders chief economist David Crowe said the question in his mind when it comes to homeownership rates is whether renters will continue to move up into becoming homeowners at the same pace they have over recent years. Some of the renters were forced into renting after being foreclosed on, but Crowe believes that many of those renters will "choose" home ownership again when they have the chance.

Foreclosures are also influencing a trend toward smaller homes being built, according to Crowe.

"Builders are competing against foreclosed homes at fire-sale prices," he said, adding that another reason for smaller homes is the push for more environmentally friendly housing. "One of the bright spots in home building right now is green."

Investing in rental properties in college towns is one bright spot Yun has recently identified in his analysis of demographic trends impacting real estate.

"Next year we will have the highest number of high school graduates ever," he said, noting that numbers continue to go up steadily over the next few decades. "If you buy a rental property in a college town you can pretty much be assured of a steady flow of renters" over the next 30 or 40 years.

But Bibby, the multi-housing unit advocate, challenged the notion that real estate is an investment. He claimed that returns from the stock market always beat returns from real estate in the long term.

"Earlier this decade housing was sold as an investment, not an expense," he said. "It's an expense."

Crowe explicitly disputed this claim, saying that Bibby was not factoring in the tax benefits of owning real estate. Yun also implicitly disputed Bibby's claim in defending one of the often-overlooked benefits of home ownership.

"(It) provides that passive, automatic discipline for saving money," he said, noting that by the age of retirement most people have paid off their mortgage and thereby receive an automatic boost in disposable income.