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Thursday, June 03, 2004

Ten Year Forecast For The U.S. Housing Market: Strong

by Henry Savage

A group of real estate industry analysts released their prediction of the housing market over the next 10 years: no bursting bubble, continued high demand and continued rising prices.

The report, released by the Homeownership Alliance, an association made up of 18 national housing organizations, made some specific predictions:

Home prices will increase by an average of 5 percent per year through 2013;

The homeownership rate will grow to more than 72 percent from its current level of 68 percent;

Total home sales will remain on par with the current level of about two million units per year.
The report cited population growth and immigration as a result of such a rosy outlook. The possibility of higher interest rates was not considered in the study because housing growth's major factor is population growth.

Interesting. I wrote a column a few weeks ago about the out-of-control Washington, D.C. area real estate market and it appears these guys think I'm dead wrong. In the column, I cited true examples to illustrate an irrational market:

41 legitimate offers on a home in the first morning of listing;

A ratified contract $100,000 over asking price on the first day of listing;

More than 30 people camping out on the streets in order to secure a contract in a new townhouse development.
After a second look at the Homeownership Alliance's report, I found myself agreeing with most of their conclusions. The study forecasts property values nationwide increasing by a mere 5 percent per year over 10 years. Ten years is a long time and history has shown that real estate, over the long term, is invariably a good investment.

Five percent per year over 10 years is hardly a bold prediction. However, real estate has proven to appreciate in a very uneven manner. We might be up 12 percent in 2008, but we might be down 3 percent in 2005 and 2006.

This is where the problem can arise. It's easy to predict that real estate will go up on average, by 5 percent per year over the next 10 years. It's difficult to predict which years, over the 10-year period will be up years and which will be down years. So I'm going to stick to my prediction that the Washington Metro Area real estate values are positioned to flatten out or even drop in some areas over the next couple of years, not just because interest rates have risen, but because the frenetic pace of the last couple of years cannot be sustained. Stay tuned.

Published: June 3, 2004

Henry Savage, the president of PMC Mortgage Corporation in Alexandria, VA, is a mortgage columnist whose work has appeared in numerous consumer, real estate, and mortgage publications. Mr. Savage welcomes your questions for possible use in this column, however because of the volume of mail received, Mr. Savage cannot answer questions individually.

Copyright © 2004 Realty Times. All Rights Reserved.

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Townhouses Continue To Grow In Size And Popularity

by Al Heavens

It began as an attractive alternative to the single-family detached suburban home -- smaller, less expensive, and requiring little maintenance.

Yet in the nearly four decades since it appeared on the suburban scene, the townhouse has grown in square footage and amenities -- so much so that, except for its proximity to the next unit, it bears little resemblance to its early ancestors.

In the early 1970s, it was an ideal place for single professionals and older couples who wanted to live in the suburbs but didn't want to deal with the maintenance that detached houses required.

In areas where there wasn't much land by the early 1970s for detached housing, the townhouse was a good choice for builders, too.

An increasing number of attached-house sales are being generated by the active-adult market, which caters to buyers 55 years and older.

Townhouses didn't capture the homebuyer's imagination at first. In 1973, you could buy a single-family detached house for $29,900, mortgage rates were 6.5 percent, and only 40 percent of buyers were two-paycheck families, so there was a limited market.

By the late 1970s, inflation had driven up new-home prices, interest rates had reached historic levels, and the number of two-paycheck families had increased in response. Townhouses became an important alternative.

A townhouse can be a first home or a last home. It can be small and affordable, or pricey and as large as a detached residence.

Townhouses attract young professional men and women at the start of their careers, but also divorced or widowed people and retirees looking for freedom from maintenance chores and enough space to store a lifetime of memories.

Townhouses are the missing link. They have become the middle ground between apartments and single detached houses.

Townhouse living has become so popular over the last two decades that apartment builders have added them to their stock of rental properties, especially in suburban areas.

Because developers can't amass large parcels, townhouses offer the best and most effective use of small lot space in city neighborhoods.

Townhouses are also less expensive to build, which is an advantage since price is a concern among low- and moderate-income buyers, and builders are hoping to tap this market by creating more purchase opportunities.

The popularity of townhouses, however, is not reflected in marketing surveys.

According to a survey conducted by the National Association of Homebuilders, 91 of 424 prospective buyers questioned preferred a single-family detached house, while 29 wanted to buy a townhouse.

Indeed, the majority of housing being sold in the United States is single-family detached, not "attached," as the Census Bureau refers to townhouses.

And although rising interest rates tend to push many single-family detached buyers into less-expensive townhouses, the ratio of attached to detached buyers has remained consistent.

Owner-occupied and rental townhouses are about evenly split. The western United States, where residential development leans toward detached housing, has the fewest number, while the South, with its high population of retirees, has the most.

But not everyone who wants a detached house can afford one, and townhouses typically fit the bill for those with fewer financial resources.

In the early 1980s, one developer dubbed the townhouse trend the "downsizing" of America. The comment may have been based on the downsizing of cars in response to a decade of dwindling and costlier energy supplies.

But the trend toward smaller automobiles did not survive the energy concerns of the 1970s, judging by the number of SUVs on the roads today.

Townhouse construction reflects this, too. At first, townhouses came with one parking space for the occupant and perhaps an additional space for a visitor.

A one-car garage followed. Now, two-car garages are fast becoming standard features in townhouses as three-car garages gain a foothold in detached houses. American Housing Survey statistics over the last decade bear this out.

In 1994, the numbers of townhouses with one-car garages and two-car garages were evenly split, census data show. In 2001, more than twice as many townhouses had two-car garages than had one-car garages.

Square footage has increased, too. The additional square footage in townhouses is designed to accommodate more bedrooms and bathrooms.

In 1994, the number of townhouses sold was evenly split between two and three bedrooms, census data show. Today, three and four bedrooms are the rule.

Ten years ago, townhouses sold were just about evenly split between 1 1/2, 2 and 2 1/2 bathrooms. Now, 2 1/2 baths predominate.

Published: June 3, 2004

Al Heavens is a syndicated columnist who writes about real estate and home improvement. He appears regularly as the "Gadgeteer" on the Discovery Channel's twice-daily Home Matters Program.

Copyright © 2004 Realty Times. All Rights Reserved.

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