Good News…And Bad News…About Housing

More about the housing market: some of it good news, some of it not.

More about the housing market: some of it good news, some of it not. Among other trends in residential real estate, CoreLogic tracks the total amount of equity that homeowners have. Negative equity, as the Great Recession demonstrated, is poison for the economy. People are yoked to their houses. Short of foreclosure or simply walking away, it’s extremely hard to move in such a circumstance—hard to take a better job or buy a better house. It also depresses other kinds of spending, such as the kind that benefits retailers. So it’s good news when negative equity isn’t quite so negative any more.

CoreLogic reported on Tuesday that 1.2 million borrowers regained equity in their homes in 2014, bringing the total number of mortgaged residential properties with equity at the end of Q4 2014 to about 44.5 million, or 89 percent of all mortgaged properties. Borrower equity increased nationwide year-over-year by $656 billion. The number of underwater homes decreased between the end of 2013 and ’14 by 1.2 million, or 18.9 percent. All that’s an improvement, but not ideal: among the 49.9 million residential properties with a mortgage, about 10 million, or 20 percent, still have less than 20 percent equity, and 1.4 million of those have less than 5 percent equity. Borrowers at near-negative equity are considered at risk of moving into negative equity if home prices fall, and it’s hard for them to sell too.

Also on Tuesday, the Census Bureau reported that housing starts dropped unexpectedly for the month and the year. Monthly fluctuation can be noise, especially in the multifamily sector. A drop since last year is a more serious matter, and in this case it’s the multifamily sector leading the way, with a decline of 9.5 percent in starts since last year. Single-family housing starts didn’t drop year-over-year, but didn’t actually gain that much, either: only 0.7 percent. Multifamily, in other words, continues to zig zag, while single-family moves sideways.

Despite the high demand for apartments in many parts of country, the long-term development trend for multifamily (five or more units) has definitely been lackluster in recent years—relative to earlier decades. The late 2000s recession caused a dip, naturally, but apartment starts are now back to where they were during most of the 1990s, or about 300,000 to 350,000 units a year. But that figure pales in comparison with the late ’70s and the ’80s, when starts were from 400,000 to as many as 600,000 a year (except for recessions). Back in the early ’70s—as the Baby Boom was forming households in record numbers—starts once reached about 900,000 units a year (1973). That suggests that, as the equally large Millennial generation forms households in the late 2010s and ’20s, there’s room for increased apartment development.